Sunteți pe pagina 1din 93

Public Debt Management in Sri Lanka

Performance in 2012 Strategies for 2013 and beyond and

Public Debt Department Central Bank of Sri Lanka i

Central Bank of Sri Lanka Public Debt Department P O Box 590 Colombo Sri Lanka Tel. : 94 11 2477277 Fax : 94 11 2477718 E-mail : publicdebtdepartment@cbsl.lk Web : http://www.cbsl.gov.lk Volume VII

ISBN-978-955-575-269-5
May 2013 Price : Rs. 200.00

Printed at the Central Bank of Sri Lanka Printing Press, No. 58, Sri Jayewardenepura Mawatha, Rajagiriya, Sri Lanka Published by the Central Bank of Sri Lanka, No. 30, Janadhipathi Mawatha, Colombo 1, Sri Lanka

ii

Contents
Message of the Governor v Message of the Superintendent of Public Debt vi Purpose of this Publication vii Objective of Debt Management viii Our Mission ix Abbreviations x Key Government Debt Indicators xi Key Economic Indicators xii 1. Highlights of 2012 2. 3. 4. Public Debt Management in 2012 Overview Targets and Strategies for Government Borrowings Debt Level The Structure of the Public Debt Portfolio Servicing of Public Debt Debt Service Payments Future Debt Service Obligations Market Operations in 2012 Primary Market Operations Secondary Market Operations 1 5 5 5 9 10 19 19 22 23 23 26 31 31 31 32 32 33 37 37 37 37 40 42

5. The Medium Term Debt Management Strategy 2013 2017 and Issues and Challenges Overview Expected Benefits of MTDS Objectives of MTDS Targets as set out in MTDS (2013 2017) Issues and Challenges in Implementation of MTDS 6. Risk Management in Public Debt and Sustainability of External Debt Risk Management is an Integral Part of the Public Debt Management Key Risks Pertaining to the Public Debt Portfolio Analysis of the Risk Profile of the Public Debt Portfolio Sustainability of External Debt Overall Sustainability of Debt

iii

7. Performance of Primary Dealers Introduction Financial Performance Risk Management Participation in Primary and Secondary Markets New Developments Special Appendix Glossary Statistical Appendix Box Articles Box 1 - Improving the Market Infrastructure for Minimizing Asymmetric Nature of Information in Government Securities Market

47 47 47 48 49 49 53 57 60

Box 3 - Understanding Key Linkages Between MTDS and Other Macroeconomic Sectors for an Optimal

Box 2 - Enhancing the Safety of Investors in Government Securities 28 Borrowing Plan 35

17

Box 4 - Reducing Public Debt Burden without Hindering the Development Process 44 Box 5 - Improving the Efficiency and Effectiveness of Primary Dealer System 50

iv

Message of the Governor


Sri Lanka has maintained an annual average investment of about 27 per cent of GDP over the last decade compared with its annual average national savings ratio of about 22 per cent of GDP. Such investments, partly funded through foreign borrowings, directly helped the country to achieve a higher economic growth thereby tripling the per capita income to USD 2,923 in 2012 from USD 981 in 2003. If however, the Government had restricted the public investments to the countrys national savings only, the people of the country would not have been able to secure the higher growth momentum as achieved. In a similar manner, in the near future too, Sri Lanka would need to attract foreign resources, including borrowings, to bridge the investments savings gap, until such time that the domestic savings are sufficient to finance the required level of national investments. During the recent past, the global debt market continued to provide greater diversification, wealth preservation and attractive returns. As a result, the demand for debt instruments, particularly in emerging markets has increased sharply. Approximately 75 per cent of the global financial instruments today constitutes debt, whereas the relative share of equity is only about 25 per cent. Since strong investor sentiment has reduced the effective cost of debt to substantially low levels, Sri Lanka has also benefitted from such positive development, as reflected in Sri Lankas progressively lowered cost of borrowing from international markets. The prudential debt management strategies implemented by the Central Bank over the past few years has served to ensure that both the level and rate of growth in the countrys public debt is sustainable, and the cost and risk objectives stipulated in the medium term debt management strategy are met. At the same time, the continuous commitment of the Government towards fiscal consolidation has helped the countrys debt to GDP ratio to record about 79 per cent, down sharply from about 106 per cent in 2002. Finally, I wish to commend the Superintendent of Public Debt and his team for effective and efficient implementation of debt management strategies during a challenging year and the timely preparation of this comprehensive Report.

Ajith Nivard Cabraal Governor, Central Bank of Sri Lanka 31 May 2013 v

Message of the Superintendent of Public Debt


In 2012, the Central Bank tightened its monetary policy and allowed more flexibility in the determination of the exchange rate. Though these policies had their adverse impact on the cost of public debt, PDD was successful in containing the impact by implementing appropriate debt management strategies as clearly articulated in the medium term debt management strategy of CBSL. Further, despite the adverse global developments, PDD was successful in continuous engagement with international sovereign rating agencies thereby facilitating the strategic objectives of CBSL to maintain the credit ratings of the country intact. Further, PDD was successful in facilitating the fifth sovereign bond issue of the Government thereby securing an overwhelming response from the international investor community. Proactive strategies adopted by PDD helped foreign participation in long dated T-bonds well within the approved threshold. Accordingly, despite challenging macroeconomic conditions, debt management strategies implemented by PDD was successful in further improving the debt profile in 2012. The yield rates on government securities, though increased significantly during the first half of the year, decelerated their increase substantially in the third quarter and in fact declined during the last quarter and the interest cost as a share of GDP declined. As the yield curve was extended up to 20 years, the average time to maturity of debt portfolio was increased and the share of short term debt in total domestic debt was brought down. An essential part of public debt management is improving government debt securities market which has been a continuing process. In 2012, an electronic trading platform was established and a number of further improvements to the market have been identified and clearly articulated in the Road Map 2013 Monetary and Financial Sector Policies for 2013 and beyond. I take this opportunity to thank my colleagues in the PDD for their dedication and commitment in managing the countrys debt portfolio efficiently and effectively.

N W G R D Nanayakkara Superintendent/Registrar of Public Debt Central Bank of Sri Lanka 31 May 2013

vi

Purpose of this Publication


The responsibility of the management of public debt in Sri Lanka has been entrusted to the Central Bank of Sri Lanka under the Monetary Law Act No.58 of 1949. This function needs a high level of professionalism, analytical ability, awareness and confidence of all stakeholders including lenders to the government and investors in government securities. The public debt stock as at end 2012 stood at Rs. 6.0 trillion consisting of domestic debt of Rs. 3.2 trillion and foreign debt of Rs. 2.8 trillion. Foreign debt constitutes loans received from a number of multi-lateral institutions, bi-lateral loans and other commercial debt in a number of currencies. The size and the diversity of the public debt portfolio demand a high level of analysis and sharing of information with the stakeholders. To fulfill this need, the Central Bank of Sri Lanka started in 2006, disseminating information in the form of an annual publication with regard to the public debt portfolio and the debt management function, aiming to enhance the transparency of the debt management function. This is the seventh in the series commenced in 2006. This publication includes information with regard to public debt management strategies adopted in 2012, movements in debt stock during the year, costs and risks of the debt portfolio, primary and secondary market operations on government securities and performance of primary dealers. A number of statistical tables giving data relevant to public debt and government securities market are also included. This publication is issued in Sinhala and Tamil languages as well.

vii

Objective of Public Debt Management


The objective of public debt management is to ensure that the governments financing needs are met at the lowest possible cost consistent with a prudent degree of risk, and to develop and strengthen the government debt securities market, while enhancing its efficiency and maintaining its stability. Although the strategic objective to be pursued in public debt management has not been made explicit by any law in Sri Lanka, it is implicitly understood that public debt management should be carried out in such a way as to:

Minimize the direct and indirect cost of public debt on a long-term perspective; Prevent an excessive concentration on redemptions and thereby minimize any type of rollover risk/refinancing risk; Promote an efficiently functioning government securities market.

viii

Our Mission

Raising funds required to meet the cash flow needs of the government at the lowest possible cost. Maintaining and updating the countrys public debt register. Servicing foreign and domestic debt obligations on time. Maintaining the risk of the debt portfolio at an acceptable level. Promoting a well functioning debt securities market. Advising the Ministry of Finance on the appropriate public debt management strategy, taking into account both prevailing and emerging macroeconomic and market conditions. Developing and improving the infrastructure relating to the public debt management and maintaining and upgrading the same.

ix

Abbreviations
ABMI ADB ATM ATR BCP Asian Bond Market Initiatives Asian Development Bank Average Time to Maturity Average Time to Refixing Business Continuity Plan Capital Adequacy Ratio NPV NSB O/D OBU OTC PDD PDs PMWAYR Repo ROA Road Map ROE Net Present Value National Savings Bank Over Draft facility Off-shore Banking Unit Over The Counter Public Debt Department Primary Dealers Primary Market Weighted Average Yield Rates Repurchase Return on Assets ROAD Map: Monetary and Financial Sector Policies Return On Equity Real Time Gross Settlement System

CAR

CBSL CCPI CDS CPC CIPC CWE OED DRS EPF DVP ETF

Central Bank of Sri Lanka

Colombo Consumer Price Index Central Depositary System Cash In Process of Collection

Ceylon Petroleum Corporation Outstanding External Debt Disaster Recovery Site Delivery Versus Payment Employees Trust Fund Electronic Trading Fitch Ratings

Corporative Wholesale Establishment

Employees Provident Fund

RTGS

E-Trading Fitch GDP GNP IDA IDR INT ISB

Gross Domestic Product Gross National Product Government of Sri Lanka Issuer Default Rating

GOSL

RWCAR SDR SOE S&P SLDB SLIBOR SPD SSSS T-bill TDS WAYR WB XGS

Risk Weighted Capital Adequacy Ratio Special Drawing Right State Owned Enterprise Standard and Poors Sri Lanka Development Bond Sri Lanka Inter Bank Offered Rate Superintendent of Public Debt Scripless Securities Settlement System Treasury bill Treasury bond Total External Debt Service Payments Weighted Average Yield Rate World Bank Receipts in exports of goods and nonfactor services including workers remittances and compensation of employees.

International Development Agency International Monetary Fund Interest Payment (External) International Sovereign Bond Licensed Commercial Banks London Inter Bank Offered Rate

IMF

T-bond

LCBs

LIBOR MLDS Moodys MTDS

Medium to Long-Term Debt Service Moodys Investors Service Medium Term Debt management Strategy

KEY GOVERNMENT DEBT INDICATORS


Borrowings 2007 645.0 2008 689.0 2009 1,050.0 2010 980.0 2011(a) 2012(b)

Approved Gross Borrowing Limit (Rs.bn) Actual gross borrowing (Rs.bn) Domestic Sources Foreign Sources

578.5

397.3

689.0

Actual Net Borrowing (Rs.bn) Domestic Sources Foreign Sources

181.2

559.4

999.1

262.3

129.6

643.3

922.1

997.0 1,139.0 671.3

145.2

322.3

355.8

594.2

994.1 1,139.0 322.8

Outstanding Debt

117.1

314.3

483.6

327.9

656.7

8.0

242.6

451.0

241.0

201.3

457.4

482.3

249.7

233.4

489.0

224.0

286.5

202.5

Outstanding Government Debt (Rs.bn) Domestic Debt Foreign Debt

3,041.7

1,715.2

3,588.9

Outstanding Debt (% of GDP) By Source Domestic Debt Foreign Debt Domestic Foreign

1,326.5

2,140.2

4,161.4

85.00 47.93

1,448.7

2,400.9

4,590.2

81.37 48.52

1,760.5

2,565.6

5,133.4 6,000.1

86.25 49.86

2,024.6

2,804.1 3,232.8 78.46

81.93 45.83

2,329.3 2,767.3

79.14 42.64

By Currency

37.07 44.27

32.85 44.74

36.39 49.59

36.10 46.63

42.86

35.59 43.85

36.50 44.65

ATM of Total Debt (Years)

40.73

ATM of Domestic Debt (Years)

Interest Cost

Share of Domestic Debt in Total Outstanding Debt (%) Total Interest Cost (Rs.bn) Domestic Debt Foreign Debt

56.39 182.7

2.52

na

36.63

59.63 212.5

2.17

na

36.65

5.29

35.30

2.25

5.25

34.59

57.7

55.89 352.6

2.10

5.41

34.49

54.62 356.7

2.35

5.74

53.88 408.5

3.23

158.7

Interest Cost/GDP ratio (%)

24.0

182.2

309.6

Yield Rates (Primary Market Annualized Weighted Average) T-bills 91 day 182 day

Interest Cost/Government Revenue ratio (%)

32.33 16.61

5.11

30.3

273.9

32.43 18.54

4.82

35.7

297.1

44.27 11.43

6.40

55.5

288.1

43.14 7.86

6.29

68.6

317.7

38.16 7.28

5.45

90.8

41.35 10.72

5.39

T-bonds

2-year 4-year 5-year

Overall Average

364 day

16.81

16.23

18.45

16.57

18.89

12.18

15.21

18.59

12.76

8.42

13.88

18.95

12.25

8.43

7.21

10-year

15.28

17.87

16.32

8.32

7.41

12.29

Foreign Investment in Government Securities

Overall Average

15.15 4.65

17.00

14.29

9.46

7.31

12.14

18.59 1.36

13.39

11.20

9.65

7.77

11.81

9.31

8.23

11.30

14.69 8.75

9.59

8.55

9.45

9.15

13.32

11.58

8.64 9.88

14.00

12.46 9.91

Foreign Investments in T-bonds/Total T-bonds Stock (%) Foreign Investments in T-bills/Total T-bills Stock(%)

(a) Revised (b) Provisional

na: not available

1.55

8.39

10.04

10.02

10.61

11.31

xi

KEY ECONOMIC INDICATORS


DEMOGRAPHY Mid-year population (000 persons) Growth of population (per cent) Population density (persons per sq.km.) Labour force (000 persons) OUTPUT Unemployment rate (per cent of labour force) 2000 19,102 1.4 305 6,827 7.6 1,258 1,233 68,102 899 5.8 6.0 6.2 10.8 1.7 6.7 -1,798 5,522 7,320 -266 -1,066 -522 -6.4 1.7 14.7 61.0 75.78 80.06 16.8 26.7 -3.8 -9.5 4.7 56.8 17.00 20.00 9.89 19.30 15.00 2007 20,039 1.2 319 7,489 6.0 3,579 3,540 178,845 1,617 7.1 6.8 15.8 18.8 24.4 14.0 -3,657 7,640 11,296 -56 -1,402 531 -4.3 3.7 13.1 51.0 110.62 98.96 78.07 108.72 15.8 23.5 -1.8 -6.9 10.2 4.7 10.50 12.00 10.31 18.08 20.00 2008 20,217 1.1 322 8,082 5.4 4,411 4,306 218,167 2,014 4.6 6.0 22.6 14.4 24.9 16.3 -5,981 8,111 14,091 -571 -3,886 -1,385 -9.5 2.0 18.0 43.7 108.33 100.07 95.19 113.14 14.9 22.6 -2.2 -7.0 1.5 55.8 10.50 12.00 11.63 20.13 20.25 2009 20,450 1.1 326 8,074 5.8 4,835 4,779 236,445 2,057 4.8 3.5 3.4 4.8 3.5 5.0 -4.2 5.9 -3,122 7,085 10,207 -97 -214 2,725 -0.5 6.3 22.4 49.7 114.94 99.85 97.36 114.38 14.5 24.9 -3.5 -9.9 13.1 9.9 7.50 9.75 8.01 17.41 19.00 2010 20,653 1.0 329 8,108 4.9 5,604 5,534 271,346 2,400 7.9 8.0 5.9 6.9 6.2 6.8 11.2 7.3 -4,825 8,626 13,451 90 -1,075 921 -2.2 6.4 16.7 50.1 113.06 100.00 100.00 110.95 14.6 22.9 -1.7 -8.0 18.8 -2.1 7.25 9.00 6.23 14.80 17.00 2011(a) 20,869 1.0 333 8,555 4.2 6,544 6,472 313,576 2,836 8.4 8.2 6.7 4.9 10.6 7.9 -9,710 10,559 20,269 452 -4,615 -1,061 -7.8 4.0 12.7 49.7 110.57 99.84 101.87 113.9 14.3 21.4 -1.4 -6.9 21.9 32.9 7.00 8.50 7.24 13.44 11.00 2012(b) 20,328 n.a. 324 8,465 4.0 7,582 7,434 373,001 2,923 5.5 6.4 7.6 9.2 3.5 8.9 -9,409 9,774 19,183 102 -3,915 151 -6.6 4.4 21.2 56.7 127..60 90.44 95.91 127.16 13.0 19.7 -1.1 -6.4 10.2 25.4 7.50 9.50 10.10 15.98 17.00

GDP at current market prices (Rs. billion) GNP at current market prices (Rs. billion) Per capita GDP at market prices (Rs.) REAL OUTPUT (percentage change) GNP PRICES AND WAGES (percentage change) CCPI (2002 = 100) - annual average(c) CCPI (2002 = 100) - year-on-year - end period GDP Per capita GDP at market prices (USD)

CCPI (2006/07 = 100) - annual average CCPI (2006/07 = 100) - year-on-year - end period Wholesale Price Index (1974 = 100) - annual average EXTERNAL TRADE Trade balance (USD million) Exports (USD million) EXTERNAL FINANCE Imports (USD million) GDP deflator

Services and income account (net) (USD million) Current account balance (USD million) Overall balance (USD million) Current account balance (per cent of GDP) Gross official reserves (months of same year imports) Overall debt service ratio As a percentage of export of goods and services EXCHANGE RATES Total external debt and liabilities (per cent of GDP)

Annual average Rs/USD NEER (2010 = 100) (24 - currency basket) REER (2010 = 100) (24 - currency basket) GOVERNMENT FINANCE (per cent of GDP) Revenue Expenditure and net lending Primary deficit (-) / surplus (+) MONETARY AGGREGATES (year-on-year percentage change) Reserve money Domestic credit from the banking system to INTEREST RATES (per cent per annum at year end) Repurchase rate (overnight) Reverse Repurchase rate (overnight) Commercial banks average weighted deposit rate Commercial banks 12 month fixed deposit rate (max.) (a) Revised (b) Provisional (c) CCPI: Colombo Consumer Price Index Commercial banks average weighted lending rate Government (net) Overall deficit (-) / surplus (+) Year end Rs/USD

xii

1. Highlights of 2012
1. Borrowing limit and Strategy for 2012
The gross borrowing limit of the government of Sri Lanka (GOSL) for 2012, approved by the Parliament under the Appropriation Act No. 52 of 2011, was Rs. 1,139 billion, an increase of Rs. 142 billion against the 2011 limit. Out of the gross borrowing requirement, Rs. 371.2 billion was expected to be raised from foreign sources while the balance Rs. 767.8 billion from the domestic sources. On net basis, total borrowing requirement for 2012 was estimated at Rs. 468.9 billion, with Rs. 271.6 billion from domestic sources and the balance of Rs. 197.3 billion from the foreign sources.

2. Actual Borrowing and Debt Level


Actual gross borrowings were maintained at Rs. 1,139 billion of the approved annual borrowing limit for 2012. Total borrowings from domestic sources were lower than the target by Rs.i111.1 billion and stood at Rs.i656.7 billion. Total borrowings from external sources exceeded the target by Rs. 111.1 billion and stood at Rs. 482.3 billion. Total outstanding debt stock stood at Rs. 6,000.1 billion as at end 2012 recording an increase of Rs.I866.7 billion compared to the stock as at end 2011. As a percentage of Gross Domestic Product (GDP), total outstanding debt stock increased from 78.46 per cent as at end 2011 to 79.14 per cent as at end 2012. This increase was reflected in the volumes of both domestic debt and foreign debt. However, domestic debt to GDP ratio decreased from 42.86 per cent in 2011 to 42.64 per cent at the end of 2012, whereas foreign debt to GDP ratio increased from 35.59 per cent to 36.50 per cent . The share of domestic debt in total debt stock was 53.88 per cent while that of foreign debt was 46.12 per cent as at end 2012.

3. Interest Cost on Public Debt


Total interest cost on public debt increased by 14.52 per cent in 2012 to Rs. 408.5 billion consisting of Rs. 317.7 billion on domestic debt and Rs. 90.8 billion on foreign debt.
Public Debt Management in Sri Lanka

As a percentage of GDP, interest cost of government borrowings declined marginally from 5.45 per cent in 2011 to 5.39 per cent in 2012. Average cost of domestic borrowing through Treasury bills (T-bills) and Treasury bonds (T- bonds) increased in 2012 to 11.81 per cent and 12.46 per cent, respectively, compared to 7.31 per cent and 8.64 per cent, respectively, in 2011.

4. Interest Rates and Yield


Primary Market Weighted Average Yield Rates (PMWAYR) for 91-day, 182-day and 364-day T-bills increased to 11.44 per cent, 13.12 per cent and 13.36 per cent, respectively, as of 14.09.2012 from 8.68 per cent, 8.71 per cent and 9.31 per cent, respectively, as at 30.12.2011. However, T-bill PMWAYR reduced to 10.00 per cent, 11.32 per cent and 11.69 per cent, respectively, as at 28.12.2012. Secondary market yield rates for Tbonds increased by 203-288 bps for 2 15 years during the year. The benchmark yield curve was extended up to 20 years with the issue of 20-year government T- bond in February 2012 at a yield rate of 11.00 per cent. The fifth International Sovereign Bond (ISB) in USD was issued in July 2012 for USD 1,000 million with a 10-year maturity at the interest rate of 5.875 per annum.

5. Broadening the Investor Base


Number of investors in government securities, as recorded in the Central Depository System (CDS) of LankaSecure, increased by 3.42 per cent to 78,896 during 2012. The value of bids for the fifth ISB for USD 1,000 million exceeded 10.5 times the offered amount. During 2012, the total net inflow from foreign investors into T-bills and T-bonds amounted to Rs. 128.2 billion As at 31 December 2012, the total foreign investment in the rupee denominated T - bills and T - bonds amounted to Rs. 80.2 billion and Rs. 317.6 billion, respectively, when compared with Rs. 70.1 billion and Rs. 199.5 billion at end 2011.

6. Infrastructure Developments
Upgrading of LankaSettle and LankaSecure (new version 3.6) introduced many new features to make the day-to-day business operations more efficient and effective. Standardization of the Investor Information Registration in the CDS of LankaSecure was initiated in order to streamline customer data recording while enhancing the safety of investors in government securities. An Electronic Trading (E-Trading) Platform was introduced to promote secondary market trading of Government Securities. FInNet, an online data reporting facility for Primary Dealers (PDs) was introduced to enhance the

Public Debt Management in Sri Lanka

efficiency and effectiveness of off-site surveillance. With a view to develop the domestic debt market measures have been taken to put in place an E-Trading Platform and a Central Counterparty arrangement for settlement of debt securities.

7. Market Development Activities


Conducted 8 public investor awareness programmes, including seminars, participation in an exhibition and TV programmes during the year to educate general public on investments in government debt securities.

8. Primary Dealer System


The overall financial performance of PDs in terms of assets growth, capital funds, liquidity and profitability demonstrated an improvement in 2012 in comparison to the significant deceleration recorded in 2011. Total assets and total portfolio of government securities held by PDs significantly grew by 20.87 per cent and 20.57 per cent, respectively, during 2012 in comparison to the marginal growth of 4.32 per cent and 4.64 per cent, respectively, in 2011. PDs reliance on repo borrowings as a source of funding increased due to illiquid nature of the market as a result of rising yield rates. Accordingly, the total repo outstanding of all PDs increased by 21.45 per cent to Rs. 103.6 billion as at end 2012 from Rs. 85.3 billion as at end 2011. The growth in repo borrowings of PDs in 2011 was only 13.28 per cent. Total capital funds of PDs increased by 11.11 per cent to Rs. 16 billion as at end 2012 from Rs. 14.4 billion as at end of 2011 due to infusion of new capital and accumulated retained earnings. Key prudential indicators such as Capital Adequacy Ratio (CAR) and Leverage Ratio of PDs remained at healthy levels in 2012. Profitability, as measured in terms of Return on Assets (ROA) and Return on Equity (ROE), of PDs has increased. ROA and ROE increased from 1.14 per cent and 7.75 per cent, respectively, in 2011 to 1.95 per cent, and 15.97 per cent respectively, in 2012 mainly due to mark-to-market gains and capital gains. Secondary market transactions, dominated by repo transactions in government securities, increased by 9.00 per cent to Rs. 7,830.5 billion during the year in comparison to Rs. 7,184 billion in 2011. Exposure to market risk decreased due to the reduction in the proportion of trading portfolio of PDs. The mismatch in short-term funding structure of PDs narrowed in 2012 to Rs. 11.2 billion, from Rs. 14.2 billion in 2011 and as a result, the overall liquidity risk exposure of the PD industry decreased. The total number of PDs remained at 12 and no new PDs were appointed during the year 2012.

Public Debt Management in Sri Lanka

Public Debt Management in Sri Lanka

2. Public Debt Management in 2012


Overview
The year 2012 was yet another challenging year for the public debt management as the macroeconomic condition of Sri Lanka was affected by unfavourable domestic and international developments which are not conducive for a healthy debt profile. Domestically, the policy rates were revised upward twice during the first half of 2012. The exchange rate policy in 2012 was mainly focused on allowing greater flexibility, by limiting the Central Banks intervention in the domestic foreign exchange market, and as a result the rupee depreciated by about 18 per cent during the first half of 2012. The administrative price adjustment on fuel and drought condition had caused the inflation to remain at the upper single digit level during most months of the year. Internationally, on the other hand, the capital markets were overshadowed by the European sovereign debt crisis while many central banks in developed countries continued to provide liquidity to the market. As a result of the above developments in the domestic market, domestic borrowing cost increased sharply during the first three quarters of 2012, shifting the investor preference toward shorter end of the yield curve. Further, the depreciation of the rupee had a direct impact on the rupee value of foreign debt service payments. Unfavourable international market conditions had a direct negative impact on the level of concessional foreign financing. However, with the soaring liquidity in the international markets, the cost of new borrowing from foreign sources reduced substantially during the year.
Public Debt Management in Sri Lanka

The Central Bank of Sri Lanka (CBSL), in line with the Medium Term Debt management Strategy (MTDS), adopted several measures to minimize the negative impact of the aforementioned developments on the borrowing cost and the risk profile of the public debt portfolio. As a result and also with improved inflows of foreign investments into Treasury bills (T-bills) and Treasury bonds (T-bonds), the pressure on domestic interest rate eased substantially towards the latter part of the year. With the downward revision to the policy rate in mid-December 2012 and the appreciation of the rupee during the second half of 2012, CBSL had been able to further strengthened the debt dynamics of the country while improving the risk profile of the public debt portfolio.

Targets and Strategies for Government Borrowings


The gross borrowing limit of the government for 2012, including a provision of Rs. 35 billion for contingencies, as approved by the parliament under the appropriation Act No. 52 of 2011, amounted to Rs. 1,139 billion, an increase of Rs.i142 billion (14.24 per cent) over the corresponding amount of Rs 997 billion for 2011. As per the annual borrowing programme, Rs. 767.8 billion was expected to be raised from domestic sources and the balance of Rs.i371.2 billion from the foreign sources. Meanwhile, total net financing requirement for 2012 was estimated at Rs 468.9 billion of which, Rs 271.6 billion was expected to be raised from domestic sources while the balance Rs. 197.3 billion to be raised from foreign sources.

TABLE 1 GOVERNMENT BORROWINGS IN 2012 (a) Net Borrowing Domestic Foreign Total Gross Borrowing by Instrument Domestic Tbonds(d) T-bills SLDBs CBSL advances Domestic banks and other sources Foreign Project/ Programme Loans Commercial Loans International Bond Treasury Bonds Treasury Bills Total 767.8 666.9 50.0 36.2 14.7 0.0 371.2 270.3 100.9 57.5 43.4 0.0 1,139.0 67.41 58.55 4.39 3.18 1.29 0.00 32.59 23.73 8.86 5.05 3.81 0.00 100.00 656.7 513.1 16.8 60.4 16.5 49.9 482.3 231.8 250.5 130.7 113.8 6.0 1,139.0 57.66 45.05 1.47 5.31 1.45 4.38 42.34 20.35 21.99 11.47 9.99 0.53 100.00 271.6 197.3 468.9 57.92 42.08 100.00 286.5 202.5 489.0 58.59 41.41 100.00 Original Plan (b) Rs. billion % Rs. billion Actual (c) %

(a) Book Value Ministry of Finance and Planning (b) Net borrowings as per Budget 2012 (c) Provisional (d) Excludes Rs. 53.9 billion and Rs. 13.5 billion T-bonds issued to Ceylon Petroleum Corporation (CPC) and Sri Lankan Airlines

Sources: Central Bank of Sri Lanka

In line with the public debt related norms as enumerated in the MTDS for 2012-2016, the borrowing plan and related strategies for 2012 were aimed at further strengthening the debt dynamics over the medium term. Accordingly, the key objectives of the borrowing strategy for 2012 included mobilization of funds at the lowest possible costs, enhancing the Average Time-toMaturity (ATM) of the debt portfolio, reducing the share of foreign currency debt in the total debt, broadening and diversification of investor base, extending the benchmark rupee yield-curve and establishment of a new benchmark yield curve for USD borrowing. As given in Table 1, 2012 borrowing programme envisaged to raise 61.73 per cent of the gross borrowing requirement in the form of T-bonds (58.55 per cent) and Sri Lanka Development Bonds (SLDB) (3.18 per cent) issued in the domestic

market. Accordingly, the reliance on domestic short-term borrowings, mainly through T-bills and advances from CBSL, intended to be limited to 5.68 per cent of the gross borrowing requirement of 2012. The total financing from foreign sources envisaged in the 2012 gross borrowing programme was limited to 32.59 per cent (Rs. 371.2 billion) of the gross borrowing requirement. This included Rs. 270.3 billion (23.73 per cent) in the form of project related loans and a further Rs. 100.9 billion (8.86 per cent) of commercial borrowing by way of International Sovereign Bonds (ISB) and foreign investments in T-bonds. The composition of actual borrowings had been revised during the year in line with domestic and international market developments, considering the cost and the possible negative implications on the risk profile. Accordingly, total

Public Debt Management in Sri Lanka

gross borrowings from domestic sources were reduced to 57.66 per cent of the gross borrowing requirement (Rs. 656.7 billion) against the planned 67.41 per cent (Rs. 767.8 billion). Of the domestic borrowings, Rs..513.1 billion (45.05 per cent) was
TABLE 2

against the planned Rs. 43.4 billion for 2012. This strategy was adopted to ease the pressure on domestic interest rates while enhancing the ATM of the domestic debt portfolio. The Primary Market Weighted Average Yield

T-BILLS PRIMARY AUCTION YIELD RATES AND T-BILLS COMPOSITE RATE - 2012

Year
2011 2012

Month 91 Days
December Total January February March April May June July August September October November December Total 8.37 7.28 8.67 9.21 10.53 11.72 12.00 10.99 11.31 11.38 11.39 10.71 10.73 10.22 10.72

Monthly Weighted Average Yield Rates on T-bills (Per cent per annum) 182 Days
8.54 8.02 8.71 9.25 10.49 11.64 12.33 12.33 12.85 12.94 12.97 11.90 12.05 11.70 12.29

364 Days
9.08 7.41 9.31 9.66 10.69 11.58 12.49 12.71 13.12 13.24 13.17 12.39 12.76 12.22 12.14

Composite Rate
8.59 7.31 8.85 9.34 10.56 11.68 12.19 12.07 12.65 12.66 12.75 12.19 12.16 11.91 11.81

Source: Central Bank of Sri Lanka

raised through T-bonds, as against the planned amount of Rs. 666.9 billion (58.55 per cent). However, the total of SLDB issuances in 2012 amounted to Rs.i60.4 billion and represented 5.31 per cent of the actual gross borrowing against the planned 3.18 per cent. As in previous years, superannuation funds were the largest domestic investors in long dated T-bonds, representing 46.30 per cent of the total issuance. Actual gross borrowings from foreign sources in 2012, on the other hand, increased to 42.34 per cent (Rs. 482.3 billion) of the gross borrowing limit against the planned 32.59 per cent (Rs. 371.2 billion). This was mainly due to an increase of the issue size of the fifth ISB to USD 1,000 million against the planned USD 500 million and total gross foreign investments of Rs. 119.8 billion in T-bills (Rs. 6 billion) and T-bonds (Rs..113.8 billion)
Public Debt Management in Sri Lanka

Rate (PMWAYR) of T-bills showed an increasing trend during the first half of 2012. The monthly Weighted Average Yield Rates (WAYR) of 91 days, 182 days and 364 days T-bills increased by 262 bps, 379 bps and 363 bps, respectively as of June 2012 compared to December 2011. The increasing trend in primary market yield rates decelerated during the third quarter of 2012 by limiting the increase in monthly WAYR of 91 days, 182 days and 364 days T-bills to 40 bps, 64 bps and 46 bps respectively from June to September. However, during the fourth quarter of 2012, T-bill yield rates began to move downward, especially after the easing of the policy rate in December 2012. Accordingly, the monthly WAYR of 91 days, 182 days and 364 days T-bills decreased by 117 bps, 127 bps and 95 bps respectively, from September to December 2012. A similar trend was observed in T-bond yield rates as well.

In line with the movements of T-bill yield rates, the annualized composite yield rate of T-bills also recorded an increase of 450 bps to 11.81 per cent in 2012 from 7.31 per cent in 2011. Similarly, annualized composite yield rate of T-bonds also increased by 382 bps to 12.46 per cent in 2012 compared to 8.64 per cent in 2011. Despite the unfavourable global economic conditions followed by negative rating actions on many countries by international rating agencies, Sri Lanka continued to maintain its sovereign rating unchanged in 2012. Considering the strong
TABLE 3 INCREASE IN OUTSTANDING GOVERNMENT DEBT Rs. billion Description Net Borrowing Effect of Parity variance Discount Effect Other Total Increase 2010 451.0 -4.7 -13.0 -4.5 428.8 2011 457.4 85.6 7.5 -7.3 543.1 2012 (a) 489.0 127.2 165.1 85.4 866.7

ratings on Sri Lanka. Accordingly, S&P affirmed its rating on Sri Lanka at B+ with a Stable outlook, Fitch affirmed its BB- rating with Stable outlook and Moodys affirmed its B1 rating with Positive outlook. In view of the low interest rates in the international markets, the Government of Sri Lanka (GOSL) issued its fifth ISB for USD 1,000 million, with a ten-year maturity, in July 2012. Reflecting an overwhelming investor confidence, the offer was oversubscribed by more than 10 times to a total bid value amounting to USD 10.5 billion. The issue was priced at a fixed coupon rate of 5.875 per cent, equivalent to a spread of 437 bps over the 10 year US Treasuries. Part of the proceeds from the issuance of sovereign bond was utilized to settle the first Sri Lankan sovereign bond of USD 500 million which matured in October 2012. Foreign investors showed a renewed interest to invest in T-bills and T-bonds, subsequent to the issuance of the fifth ISB in July 2012. Accordingly, the total investments by foreigners in T-bills and T-bonds increased to Rs. 397.8 billion or 12.41

(a) ProvisionalSources: Central Bank of Sri Lanka Ministry of Finance and Planning

TABLE 4 KEY DEBT INDICATORS END 2012 Description Debt/GDP ratio (%) Government Budget Deficit/GDP (%) Interest Cost/GDP ratio (%) Interest Cost/Government Revenue ratio (%) ATM of Domestic Debt (Years) ATM of Total Debt (Years) Share of Foreign currency debt to Total Debt (%) (a) Provisional 2010 81.93 7.96 6.29 42.20 2.10 5.25 43.10 2011 78.46 6.88 5.45 38.10 2.35 5.32 44.10 2012(a) 79.14 6.45 5.39 41.35 3.23 5.74 43.58

Sources: Central Bank of Sri Lanka Ministry of Finance and Planning

policy measures taken by the government and CBSL to ensure economic and price stability and the financial system stability, improving macroeconomic indicators, the external liquidity and unblemished track records in servicing debt, three credit rating agencies, namely, Standard & Poors (S&P), Fitch Ratings (Fitch) and Moodys Investors Service (Moodys) affirmed their credit

per cent of the total outstanding value1 of T-bills and T-bonds as at end 2012. The threshold for foreign investments in T-bills and T-bonds was revised upward to 12.50 per cent from 10 per cent in December 2011. The funds raised through concessional and non-concessional project / programme loans in
1 Including Rs. 78.4 billion worth T-bonds issued to CPC

Public Debt Management in Sri Lanka

TABLE 5 OUTSTANDING GOVERNMENT DEBT (AS AT END OF YEAR) Outstanding Debt (Rs. bn) - By Source Domestic Total Outstanding Debt (Rs. bn) - By Currency Domestic Currency Total Outstanding Debt (% of GDP) - By Source Domestic Total Outstanding Debt (% of GDP) - By Currency Domestic Currency Foreign Currency Total Foreign Foreign Currency Foreign 2010 2,565.7

2011(a) 2,804.1

2012 (b) 3,232.8

2,024.6

4,590.2 2,612.8

2,329.3

5,133.4 2,869.9

2,767.3

6,000.1 3,385.3

1,977.5

4,590.2 45.80

2,263.5

5,133.4 42.86

2,614.8

6,000.1 42.64

36.14

81.93 46.64

35.59

78.46 43.85

36.50

79.14 44.65

35.30 81.93

34.59 78.46

34.49 79.14

(a) Revised (b) Provisional

Sources: Central Bank of Sri Lanka Ministry of Finance and Planning Rs. billion

TABLE 6 Net increase OF DEBT IN RUPEE TERMS DUE TO movement in exchange rates Currency Special Drawing Rights 2010 -10.2 44.4 -25.9 -14.0 1.0 -4.7 (Sri Lanka Rupees per Unit of Foreign Currency) 170.84 1.36 110.95 147.56 2011 13.4 39.8 34.7 1.8 -4.2

2012 (a) 70.6 4.8 21.1 20.5 10.2

Japanese Yen US Dollar Euro Other Total

Memo: End Year Exchange Rates Special Drawing Rights

85.6
174.87 1.47 113.90 147.42

127.2

Japanese Yen US Dollar Euro

195.31 1.48 127.16 168.13

(a) Provisional

Sources: Central Bank of Sri Lanka

2012 amounted to Rs. 231.8 billion against the estimated amount of Rs. 270.3 billion, continuing the contraction in availability of such financing.

Debt to GDP ratio, a key debt sustainability indicator, recorded a slight increase of 0.68 percentage points from 78.46 per cent in 2011 to
CHART 1 CENTRAL GOVERNMENT DEBT 7,000 6,000 5,000 Rs. billion 4,000 3,000 2,000 1,000 0 2008 2009 2010 2011 2012 60 50 Per cent 80 70 100 90

Ministry of Finance and Planning

Debt Level
The total government debt at the end of 2012 stood at Rs. 6,000.1 billion recording an increase of Rs. 866.7 billion during the year 2012. Of this increase, Rs. 428.7 billion was due to the increase in domestic debt, while the balance Rs. 438 billion was due to the increase in Rupee value of foreign debt which includes the effect of unfavourable increase of Rs. 127.2 billion in rupee value of foreign debt due to the depreciation of the rupee against foreign currencies in 2012.
Public Debt Management in Sri Lanka

Outstanding Debt (LHS)

% of GDP (RHS)

79.14 per cent in 2012. The debt to GDP ratio, excluding the increase of Rs. 127.2 billion in rupee value of foreign debt due to the unfavourable change in exchange rates, increased to 77.46 per cent for the year 2012 compared to 77.15 per cent at the end of 2011. The impact of the rupee depreciation had
CHART 2 COMPOSITION OF GOVERNMENT DEBT 100 80 Per cent 60 40 59.6 20 0 57.7 55.9 54.6 53.9 40.4 42.3 44.1 45.4 46.1

increased by Rs. 351.4 billion (15.53 per cent) to Rs. 2,614.8 billion at the end of 2012. This was mainly due to the net increase of USD 500 million in outstanding value of ISB, new issuances of SLDBs, borrowings from multi-lateral and bi-lateral sources and also the unfavourable increase in rupee value of foreign debt due to the depreciation of the Sri Lanka rupee against foreign currencies.

The Structure of the Public Debt Portfolio


Domestic Debt
Even though, the total domestic debt stock of the government increased by Rs. 428.7 billion during the year and stood at Rs. 3,232.8 billion as at end 2012, the share of domestic debt in the total government debt, however, recorded a marginal decline to 53.88 per cent compared to 54.62 per cent in 2011. The total domestic debt as a percentage of GDP slightly decreased to 42.64 per cent in 2012 from 42.85 per cent in 2011.

2008

2009
Foreign

2010

2011
Domestic

2012

negative implications on other key debt indicators, including governments budget deficit/GDP Ratio and government revenue and duration of the debt portfolio in 2012. At end 2012, the domestic debt increased by Rs. 428.7 billion (15.29 percent) to Rs. 3,232.8 billion, while the foreign debt increased by Rs..438 billion (18.80 per cent) to Rs. 2,767.3 billion. The domestic currency debt stock increased by Rs. 515.4 billion (17.96 per cent) to Rs. 3,385.3 billion at the end of 2012. This increase was mainly due to the issuances of T-bonds in place of maturing T-bills and the increased foreign investment in government securities. The rupee value of foreign currency denominated government debt stock
CHART 3 DOMESTIC DEBT 3,500 3,000 Rs. billion 2,500 2,000 1,500 1,000 500 0 2008 2009 2010 2011 2012 40 55

Composition of Domestic Debt


There were no new Rupee Loans issued in 2012. However, part of the outstanding Rupee Loans was settled in April 2012 and therefore, the Rupee Loan stock decreased to Rs. 58.4 billion or to 1.81 per cent of the total domestic debt stock at the end of 2012 from Rs. 62 billion or 2.21 per cent at the end of 2011. In 2012, The Governments borrowings
CHART 4 COMPOSITION OF GOVERNMENT DOMESTIC DEBT 2010 - 2012 100 80

Per cent

50

Per cent

60 40 20 0
Other

45

2010
OBUs

2011
Rupee loans SLDBs T-bonds

2012
T-bills

Outstanding Debt (LHS)

% of GDP (RHS)

10

Public Debt Management in Sri Lanka

from the two state banks in the form of temporary overdrafts increased by Rs 46.6 billion to Rs 96.8 billion or 2.99 per cent of the total domestic debt at the end of 2012 from Rs. 50.2 billion or 1.79 per cent at the end of 2011. Further, the share of non-tradable domestic debt stock, including Rupee Loans, borrowings from Off-shore Banking Units (OBUs), CBSL advances and overdrafts with two state banks, increased to Rs. 285.7 billion or 8.84 per cent of the total domestic debt at the end of 2012 from Rs. 210.1 billion or 7.49 per cent as at end 2011. Consequently, the relative share of total tradable debt instruments in the total domestic debt decreased from 92.51 per cent at the end 2011 to 91.16 per cent as at the end of 2012. Furthermore, rupee equivalent of the foreign currency denominated domestic debt increased to Rs. 242.1 billion or 7.49 per cent of the total domestic debt stock at the end of 2012 from 7.17 per cent or Rs..200.9 billion at the end of 2011.

and individuals and insurance funds had reduced their holdings in the Government securities by Rs. 21.4 billion (4.78 per cent) and Rs. 0.6 billion (1.74 per cent) to Rs. 426 billion and Rs. 33.8 billion respectively, while Provident and Pension Funds increased their holdings of domestic debt instruments of the government by Rs. 245.4 billion or 25.58 per cent during the year to Rs. 1,204.7 billion as at the end of 2012 from Rs. 959.3 billion at the end of 2011. Investment in domestic debt instruments of the government by the banking sector, i.e. Licensed Commercial Banks (LCB) and CBSL, increased
CHART 6 OWNERSHIP OF MAIN DEBT INSTRUMENTS - 2010 - 2012 100 80 Per cent 60 40 20 -

Domestic Debt by Investor Base


Banking Sector and Non-bank Sector Non-bank sector, consisting of Employee Provident Fund (EPF) and National Savings Bank (NSB), insurance companies, and other official funds, continued to be the major holders of domestic debt of the government at the end of 2012. The share of total non-bank sector holdings of domestic debt of the government debt in the total domestic debt stood at 67.26 per cent at the end of 2012 in comparison to 68.40 per cent in 2011. However, the private business entities
CHART 5 DOMESTIC DEBT BY INVESTOR - 2010 - 2012 100 80 60 40 20 2010
Private and Other Savings Institutions Central Bank

2010 2011 2012 2010 2011 2012 2010 2011 2012 T-bills
Non-Bank Sector

T-bonds
Commercial Banks

R-loans
Central Bank

by Rs. 172.1 billion (19.4 per cent) to Rs. 1,058.4 billion at the end of 2012, mainly due to Rs. 170.3 billion incremental investments by LCBs in such debt instruments. LCBs holding of domestic debt instruments of the government increased to Rs..793.2 billion or 24.5 per cent of the total domestic debt at the end of 2012 from Rs. 622.9 billion (22.20 per cent) in 2011. LCBs holding of T-bills and T-bonds increased by Rs. 33.9 billion and Rs. 36.3 billion respectively during year to Rs. 219.7 billion and Rs. 242.8 billion, respectively at the end of 2012. Meanwhile, non-bank sector investment in government securities increased by Rs. 256.5 billion of which, the increase in T-bills and T-bonds amounted to Rs.20 billion and Rs. 239.5 billion respectively, to Rs.255.3 and Rs. 1,852.2 billion respectively.

2011
Departmental and Other Official Funds Employees' Provident Fund

2012
Insuarance and Finance Companies Commercial Banks

Public Debt Management in Sri Lanka

11

CHART 7 MATURITY STRUCTURE OF T-BONDS AND R-LOANS 800 700 Rs. billion 600 500 400 300 200 100 0 1 year 2 year
R-loan

in ATM of T-bonds from 2.90 years in 2011 to 3.99 years in 2012. However, ATM of Rupee Loans decreased from 6.05 years in 2011 to 5.41 years in 2012 mainly due to the repayment of the existing loans. ATM of all domestic loans increased from 2.35 years in 2011 to 3.23 years at the end of 2012. ATM of domestic debt increased over and above 3 years in 2012 for the first time since 2006.

3 year

4 year
T-bond

>4 year

Foreign Debt
The rupee value of total foreign debt stock amounted to Rs. 2,767.3 billion at the end of 2012, an increase of Rs. 438 billion (18.80 per cent) compared to the Rs. 2,329.3 billion at the end of 2011. As a percentage of GDP it increased to 36.50 per cent at the end of 2012 from 35.59 per cent at the end of 2011. The increase was mainly attributable to the unfavourable increase in rupee value of the foreign debt owing to the depreciation of the rupee against major currencies and also to the absolute increase in foreign debt stock. The increase in the foreign debt stock as a result of the above mentioned increase amounted to Rs. 127.2 billion. During the year project related loans
CHART 9 FOREIGN INVESTMENTS IN TREASURY BILLS AND TREASURY BONDS 400 350 300 Rs. billion 250 200 150 100 50

Maturity Structure of the Domestic Debt


As at end 2012, short term domestic debt amounted to Rs. 813.3 billion. CBSL was able to maintain the short term debt at a stable level of around 25 per cent of the total domestic debt held in 2012 and 2011. However, the short term non-instrumental borrowings by way of overdraft from two state owned commercial banks increased by Rs. 46.6 billion to Rs. 96.8 billion. In order to reduce the refinancing risk, CBSL issued medium to long term T-bonds and extended the yield curve for T-bonds. As a result, there was a sharp increase
CHART 8 WEEKLY MATURITY PROFILE OF TREASURY BILLS IN 2012 50 45 40 35 30 25 20 15 10 5

Rs. Billion

06 Jan

04 Jun

04 Jul

02 Sep

02 Oct

01 Nov

05 May

01 Dec

03 Aug

05 Feb

06 Mar

05 Apr

Q1 Q2 Q3 Q4 2009

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010
T-bill

Maturity Date

2011
T-bond

2012
Total

TABLE 7 DURATION AND AVERAGE TIME TO MATURITY (ATM) OF DOMESTIC CURRENCY DEBT (AS AT END OF YEAR) Instrument 2010 Treasury bills Treasury bonds Rupee loans Overall 0.43 2.01 3.99 1.74 Duration(a) (Years) 2011 0.30 1.36 3.91 1.18 2012 0.37 2.44 3.67 1.89 2010 0.43 2.41 6.45 2.10 Average Time to Maturity (Years) 2011 0.31 2.90 6.05 2.35 2012 0.38 3.99 5.41 3.23

(a) Weighted average maturity of the cash flows

Source: Central Bank of Sri Lanka

12

Public Debt Management in Sri Lanka

TABLE 8 COMPOSITION OF FOREIGN DEBT Category Concessional Bilateral Multilateral Other Commercial Sovereign Bonds Bilateral Multilateral Others Total (a) Revised (b) Provisional 2011(a) Rs. billion 1,328.8 657.9 624.6 46.3 1,000.5 341.7 138.6 97.3 422.9 2,329.3 % 57.05 28.24 26.82 1.99 42.95 14.67 5.95 4.18 18.15 100.00 Rs. billion 1,369.6 574.5 670.7 124.4 1,397.7 445.1 281.5 173.6 497.6 2,767.3 Sources: Central Bank of Sri Lanka 2012(b) % 49.49 20.76 24.24 4.49 50.51 16.08 10.17 6.27 17.99 100.00

Ministry of Finance and Planning

increased by Rs. 206.7 billion and commercial loan stock was increased by Rs. 231.3 billion. The commercial loan stock increased due to the net increase of USD 500 million in fifth ISB issuance and the net investments of Rs. 128.2 billion in T-bills and T-bonds by foreign investors during the year.

Composition of Foreign Debt


Total amount of funds raised through concessional, bi-lateral and multi-lateral loans for specific projects and programmes representing 45 per cent of total foreign debt declined by Rs..7.3 billion (10 per cent) to Rs. 1,245.2 billion at end 2012. In spite of the Rs. 40.8 billion increase in concessional loans to Rs. 1,369.6 billion at the end of 2012, the relative share of concessional loans in
CHART 10 FOREIGN DEBT 3,000 2,500 2,000 Rs. billion 1,500 1,000 500 2008 2009 2010 2011 2012 37 36 Per cent

the total foreign debt stock decreased to 49.49 per cent as at the end 2012 from 57.05 per cent as at the end 2011 while, the share of commercial and other non-concessional loans increased to 50.51 per cent at the end 2012 from 42.95 per cent at the end of 2011 as a result of the sharp increase of Rs. 397.3 billion in 2012. This was mainly due to the gradual diminishing of the ability of the country to access new concessional loans as a result of its elevation to lower middle income economy status, and hence gradual increase in dependence on commercial borrowing to bridge the domestic investment savings gap. Total bi-lateral loans for 2012 amounted to Rs. 856 billion and constituted 30.93 per cent of total foreign debt and the share of total multi-lateral loans of Rs. 844.3 billion was 30.51 per cent. Total
CHART 11 FOREIGN DEBT BY CONCESSIONALITY - 2010-2012 100 90 80 Per cent 70 60 50 40 30 20 10 2010 2011 2012

35 34 33 32 31

SDR EURO LKR b/ % of GDP (RHS)

USD Jap.Yen Other

Non-Concessional Loans

Concessional Loans

Public Debt Management in Sri Lanka

13

TABLE 9 MATURITY, GRANT ELEMENT & INTEREST RATES OF foreign DEBT 2012 Donor Category Bi-lateral Multi-lateral Commercial Export credit Average Amount Rs. billion 855,996 844,292 851,877 215,135 2,767,300 Grace Period (Yrs) 0 - 21 0 - 18 2 - 11 1 - 13 Repayment Period (Yrs) 0 - 40 2 - 50 0 - 20 1 - 18 Grant Element (%) 0 - 92 (80) - 94 (14) - 43 (12) - 66 Avg. Interest Rates(a) (% p.a.) 2.57 0.92 7.50 1.87 2.75 Sources: Central Bank of Sri Lanka Ministry of Finance and Planning

(a) Interest paid in 2012/Disbursed outstanding debt as at end 2011

of the commercial loans amounting to Rs. 1,397.7 billion (50.51 per cent) of the total foreign loans included Export Credits of Rs. 215.1 billion and ISBs of Rs. 445.1 billion.
CHART 12 FOREIGN DEBT BY SOURCE - 2010-2012 100 90 80 70 Per cent 60 50 40 30 20 10 2010
Commercial Loans

Duration of Foreign Debt


Reflecting the decrease in concessional loans with features such as long grace periods and repayment periods and relative increase in commercial borrowings from the international capital markets, ATM of foreign debt decreased to 8.72 years as at the end of 2012 from 9.01 years at end of 2011. Meanwhile, the duration of foreign currency loans also decreased by 0.76 years from 7.55 years in 2011 to 6.78 years as at the end of 2012.

2011
Bilateral

2012
Multilateral

Usage of Foreign Debt


The debt raised through foreign sources was mainly used for the economic development activities and stood at 55.20 per cent at the year end compared to 50 per cent in 2011. Out of the total outstanding foreign debt, at the end of 2012, Rs. 1,529 billion or 55.25 percent had been used for various economic services including countrywide energy, water supply, roads and bridges, telecommunication, port and shipping etc. The foreign debt usage for social services was recorded as the second major sector at 10.12 per cent. However, it is noticeable that 2.10 per cent of the debt has used for commodities and foods in 2012 compared to 1.80 per cent in 2011.

Currency Composition of Foreign Debt


The currency composition of foreign debt at the end of 2012 revealed that the share of the USD denominated loans increased from 29.14 per cent in 2011 to 30.86 per cent in 2012. Further, the concentration of the foreign debt on four major currencies, i.e. USD, Special Drawing Right (SDR), Japanese Yen and Euro, reduced to 82.51 per cent in 2012 from 83.32 per cent in 2011. Meanwhile, foreign debt denominated in Sri Lankan Rupee increased from 11.57 per cent in 2011 to 14.37 per cent in 2012 due to increase in foreign holdings of T-bills and T-bonds.

14

Public Debt Management in Sri Lanka

TABLE 10 CURRENCY COMPOSITION OF FOREIGN DEBT (AS AT END OF YEAR) Currency US Dollar Special Drawing Rights Japanese Yen Sri Lanka Rupee(c) Euro Other Total Memo: Total External Debt (Rs.billion) 2010 23.54 28.27 25.13 11.90 7.03 4.13 100.00 2,024.6 2011(a) 29.15 25.83 24.05 11.57 6.30 3.10 100.00 2,329.8 2012 (b) 30.85 24.68 20.79 14.37 6.31 3.00 100.00 2,767.3 Per Cent

(a) Revised (b) Provisional (c) Non-residents investments in T-bills and T- bonds

Sources: Central Bank of Sri Lanka Ministry of Finance and Planning

Public Debt Management in Sri Lanka

15

TABLE 11 USE OF foreign DEBT BY MAJOR SECTORS (a) Rs. billion Economic Sector 1. Economic Services Agriculture Fishing Forestry 1.1 Agricultural Development 2011 1,359.9 163.7 45.2 10.1 35.5 66.3 0.2 611.7 6.3 % 58.38 7.03 1.94 0.27 0.43 1.52 2.85 2012(b) 1,529.0 178.2 48.9 10.7 37.1 73.3 1.5 724.7 263.4 159.6 266.4 2.5 455.3 100.1 205.9 20.9 88.3 2.4 37.7 32.9 6.7 % 55.25 6.44 1.77 0.24 1.34 2.65 0.39

Plantation

Irrigation & Related Activities Livestock Development Energy 1.2 Industrial/Construction Water Supply

0.01 26.26 11.74 5.79 7.30 0.10 18.37 5.31 6.91

0.05 26.19 9.52 5.77 9.63 0.09 16.45 3.62 7.44 0.75 3.19 0.09 6.17 1.36 1.19

273.5 134.8 170.0 2.3 427.9 123.7 161.0 21.7 79.8 2.5 0.6 9.5 74.0 63.4 2.3 242.4 53.6 21.7 26.9 31.7 6.4 6.9 156.7 39.2 31.1

Industrial Development Roads and Bridges Other Construction 1.3 Service Sector

1.33

Telecommunications Ports & Shipping Ground Transport Finance, Insurance, etc.

1.68

Air Transport Trade

0.93 3.43 0.11 6.73 0.02 0.41 0.30 3.18 2.72 0.10

1.4 Other Economic Services Land Development Management & Institutional Development Information Technology Development Private Sector Development Rural Development 2. Social Services Science & Technology Education & Training Environment

170.8 14.7 75.1 69.0 2.5 280.0 62.3 24.6 26.1 34.9 7.0 8.8 0.6

0.02 0.53 0.32 2.71 2.49 0.09 10.12 2.25 0.89 0.94 1.26 0.25

10.41 2.30 0.93 1.16 1.36 0.28 0.00 2.04

Health & Social Welfare Housing & Urban Development Labour & Vocational Training Media Rehabilitation Sewerage

47.5

0.1 3.6

Tsunami Rehabilitation 3. Commodities & Food Commodities Food

50.9 53.5 28.7 24.8 2,329.3 673.5

0.15 2.19 2.30 1.23 1.06

63.8 57.4 56.6 31.2 25.4 2,767.3 901.6 3.8

0.1

0.00 2.31 0.14 2.07 2.05 1.13 0.92

4. Other Activities

Total Outstanding Debt

Sources: Central Bank of Sri Lanka Ministry of Finance and Planning

100.00

28.92

100.00

32.58

(a) Based on Outstanding External Debt data recorded in CS-DRMS as at end December 2012. Sovereign bond issues in 2009, 2010, 2011 uuiiand 2012 , and T-bills and T- bond s held by non-residents are recorded under other activities. (b) Provisional

16

Public Debt Management in Sri Lanka

Box 1 - Improving the Market Infrastructure for Minimizing Asymmetric Nature of Information in Government Securities Market
Government securities market represents a key segment of the financial market in Sri Lanka and the efficiency and effectiveness of financial market is important to ensure the stability objectives of the country. Government securities market consists of two segments namely, primary market and secondary market. Primary market is the issuance platform for government securities such as Treasury bonds (T-bonds) and Treasury bills (T-bills). These are issued through primary auctions conduct by the Public Debt Department (PDD) of the Central Bank of Sri Lanka (CBSL). Primary Dealers (PDs) obtain their T-bills and T-bonds by directly participating in the primary auctions through a competitive bidding process. Secondary market is a trading platform for government securities. Key participants in the secondary market are PDs, Licensed Commercial Banks (LCB), licensed specialized banks, finance companies, insurance companies and other corporate and individual investors. The secondary market transactions in government securities consist mainly of outrights and repo transactions. An anomaly in the financial market refers to a situation where either price and/ or rate of return is subject to some form of distortion. This particular state contradicts with the efficient and fair market trading. Market anomaly usually relates to (a) structural factors such as unfair competition, lack of market transparency and information asymmetry, and regulatory actions; (b) behavioral biases by economic agents etc. Information asymmetry refers to the lack of equal access to information by each and every investor where one party has the access to more or better information than the other. This situation leads to an imbalance of market power in transactions on government securities. Therefore, Asymmetric information may result in less return for one or both parties. Information asymmetry, in most cases, causes the transactions to get distorted and leads to a market failure. Some of the problems associated with information asymmetry are adverse selection, moral hazard, and information monopoly. This could lead to a harmful situation because one party can take the advantage of the other partys lack of knowledge. Information asymmetry could often cause market anomaly because some participants have the advantage of access to information or sometimes both parties will not have access to the right position in the market. Such lack of information would eventually be reflected in abnormally high bid and ask spread, reluctance to enter the market. The efficient market trading postulates that a market is efficient when security prices reflect all the information. In an optimal situation, information is free and all investors have the opportunity to take advantage of available information and to make rational decisions about securities prices in the market. However, in reality, information is not free and investors engage in comparing cost of information against the potential gains acquired from the information. Efficiency in the securities market is based upon the underlying principle of publicly available information. When new information enters the securities market, prices will adjust quickly because investors will revise their expectations formed previously. They will start selling and buying securities based on their new beliefs and this will cause changes in prices of securities. Addressing asymmetric in information is crucial because the efficient securities markets go hand in hand with the full disclosure of information. At present, information is not publicly available with respect to key areas in government security market in Sri Lanka. There are number of areas which would lead to a situation where information asymmetry in the market. However, the most contributing factor for inefficient market due to information asymmetry is the lack of an automatic
Public Debt Management in Sri Lanka

17

price discovery mechanism in the market place. Lack of an automatic price discovery on instruments traded in the market is the outcome of such information asymmetry in the government securities market in Sri Lanka. Reluctance of investors to participate in secondary market activities, substantially high buying and selling spread, and existence of an informal over-the-counter market are some of the negative outcomes due to asymmetric information driven market anomalies in the government securities market in Sri Lanka. This situation hinders the creation of a dynamic yield curve, making it difficult to broaden and deepen the cash market, certain players reluctant to transact with certain players, making market liquidity inadequate, non-existence of a derivative market, inability of the market players to hedge their risk exposure, tendency for buy and hold rather than trade for enhanced return etc. A number of steps consist of strategic policy drive and rapid market infrastructure development drives are needed to overcome the current issues faced by the domestic government securities market, which would eventually minimize asymmetry in information. As the first step, proper market infrastructure has to be put in place to capture information on market flows. Such infrastructure should essentially include a trading platform for buyers and sellers to mark their interest with a central arrangement for the instantaneous settlement of cash and security legs of transactions entered into through either the Electronic Trading (E-Trading) platform or at the Over the Counter (OTC) market. While doing so, all transactions in government securities, irrespective of whether conducted through the proposed E-Trading platform or OTC, required to be settled through the proposed central clearing arrangement so essential information for building the much needed dynamic yield curve could be captured. A central counterparty arrangement would essentially help in addressing the credit risk for market participants thereby making the buyers and sellers indifference about their transacting counterparties. If the settlement arrangement is much quicker as Delivery Versus Payment (DVP ) III, the market liquidity in terms of the rupee leg and the security leg would be enhanced allowing the market players to increase the volume of transactions.

18

Public Debt Management in Sri Lanka

3. Servicing of Public Debt


Debt Service Payments
The Central Bank of Sri Lanka (CBSL) continued servicing of the public debt that includes payment of principal and interest as well as other contractual obligations in relation to the debt obtained by the Government of Sri Lanka (GOSL) while upholding the countrys unblemished record of debt servicing in 2012. The total debt service payment in 2012, amounted to Rs. 1,017.5 billion recording an increase of Rs. 122.1 billion (13.64 per cent) compared to Rs. 895.4 billion in 2011. The repayment of USD 500 million (Rs. 64.5 billion) on account of the maturing 5-year International Sovereign Bond (ISB) issued in 2007 and also Rs. 24.1 billion increase in amortization payments on project related foreign loans mainly contributed towards the above increase. Further, higher than expected interest cost on domestic new borrowing as a result of the increase in domestic
TABLE 12 Category Domestic Principal Payments (b) Interest Payments Foreign(d) Principal Payments Total Payments (a) Provisional (b) Excludes T-bond payments to non-residents . (c) ExcludesT-bill & T-bond interest payments to non-residents . (d) Excludes debt service payments on State Owned Enterprises (SOE). (e) Includes T-bond payments to non-residents. (f) Includes T-bill & T-bond interest payments to non-residents .
(e) (c)

interest rates and the increase in the rupee value of the foreign currency debt service payments owing to the depreciation of the rupee against all major currencies also contributed to the increase in the total debt service payments in 2012. Of the total debt service payments in 2012, Rs. 609 billion or 59.85 per cent represented amortization payments while the balance of Rs. 408.5 billion or 40.15 per cent represented payments of interest compared to the amortization payments of Rs. 538.7 billion (60.16 per cent) and interest payments of Rs. 356.7 billion (39.84 per cent) in 2011. In terms of the source of borrowing, Rs..733.1 billion (72.05 per cent) of total debt service payments in 2012 was made to domestic sources on account of domestic debt while the remaining Rs. 284.4 billion (27.95 per cent) was made to foreign sources on account of foreign debt.
Rs. million 2011 728,028 439,894 288,134 167,354 98,789 68,565 895,382 2012(a) 733,100 415,441 317,659 284,368 193,529 90,839 1,017,468 Sources: Central Bank of Sri Lanka Ministry of Finance and Planning

DEBT SERVICE PAYMENTS

Interest Payments (f)

Public Debt Management in Sri Lanka

19

Total debt service payments as a percentage of total government revenue in 2012 stood at 103 per cent compared to 95.79 per cent in 2011. In addition to the aforementioned increase in debt service payments, the slow growth in government revenue contributed mainly to the deterioration in the ratio of debt service payments as a percentage of total government revenue. The government revenue grew only at 5.68 per cent in 2012 compared to 14.38 per cent growth in the previous year. However, total debt service payments as a percentage of Gross Domestic Product (GDP) improved to 13.42 per cent in 2012 compared to 13.68 per cent in 2011.

A sum of Rs. 415.4 billion was spent in 2012 on amortization of domestic debt compared to the Rs. 439.9 billion in 2011, a reduction of Rs. 24.5 billion or 5.57 per cent. This was mainly due to a net reduction of Rs. 5.6 billion in amortization of rupee denominated domestic loans owing to an early retirement of a relatively costly three series of Rupee Loans in 2011 and also a further reduction of Rs. 18.8 billion in the rupee value of the amortization of foreign currency denominated domestic debt. Amortization of Foreign Debt The rupee value of total amortization payment on account of foreign debt in 2012 amounted to Rs. 193.5 billion, recording an increase of Rs. 94.7 billion or 95.90 per cent over the Rs. 98.8 billion in 2011. In addition to the Rs. 64.5 billion on account of the repayment of USD 500 million for the first ISB, Rs. 24.1 billion increase in amortization payments on project loans and an increase in maturity of Treasury bonds (T-bonds) held by foreigners amounting to Rs. 6.1 billion contributed to the above mentioned increase in amortization of foreign debt.

Amortization of Debt
The total of the amortization payments made in 2012 amounted to Rs. 609 billion showing an increase of 13.05 per cent over the Rs. 538.7 billion in 2011. Of the total amortization payments in 2012, Rs. 415.4 billion or 68.22 per cent represented domestic debt and the balance of Rs. 193.5 billion or 31.78 per cent represented foreign debt. Despite the above mentioned increase, total amortization payments as a percentage of GDP stood at 8.03 per cent in 2012 against 8.23 per cent in 2011. Amortization of Domestic Debt
TABLE 13

Interest cost

The total interest cost on public debt for 2012 amounting to Rs. 408.5 billion recorded

Amortization of Loans Source/ Instrument Domestic Debt T- bonds (b) 2010 389.7 293.2 2011 439.9 346.2

2012 (a) 415.4 369.6

Rs. billion

Rupee Loans OBU Loans SLDBs

Other Domestic

24.6 6.8 60.1 78.2

5.0 3.1 -

25.7 6.1 54.9

6.9

3.6 0.2 42.1

Foreign Debt T-bonds held by Foreigners Sovereign Bond Other Total Amortization Payments (a) Provisional (b) Excludes T-bond capital payments to non-residents

98.8 10.4 88.4 538.7

193.5 16.5 64.5 112.5 609.0

75.1 467.9

Sources: Central Bank of Sri Lanka

20

Public Debt Management in Sri Lanka

TABLE 14

INTEREST COST ON PUBLIC DEBT Source/ Instrument Domestic Debt T-bills (b) T- bonds (c) 2010 297.1 58.9 12.3 1.1 7.9 8.0 2011 288.1 46.3 11.2 0.9 8.2 5.2

2012 (a) 317.7 65.0

Rs. billion

Rupee Loans OBU Loans SLDBs

208.9

216.5

227.7

Foreign Debt (e)

Other Domestic (d)

8.6 90.8 408.5

6.4 1.1 8.9

55.5 352.6

68.6 356.7

Total Interest Cost

Sources: Central Bank of Sri Lanka (a) Provisional Ministry of Finance and Planning (b) Excludes T-bills interest payments to non-residents (c) Excludes T- bond interest payments to non-residents (d) Includes interest on overdraft facility taken from Commercial Banks, administrative borrowings etc. (e) Includes T-bills and T- bonds interest payments to non-residents
CHART 13 TOTAL INTEREST COST 450 400 350 Rs. billion 300 250 200 150 100 50 0 2008 2009 2010 2011 2012 4 7 Per cent 8

government spending on payment of interest on public debt in 2012 represented 41.35 per cent of its total revenue compared to 38.16 per cent in 2011. Interest Cost on Domestic Debt

Interest Cost (LHS)

% of GDP (RHS)

an increase of 14.52 per cent or Rs. 51.8 billion over Rs. 356.7 billion in 2011. This increase was mainly attributable to the increase in interest paid on Treasury bills (T-bills) and T-bonds as a result of the substantial increase in domestic interest rate and the increase in rupee value of interest paid on foreign currency loans owing to the depreciation of the rupee against major foreign currencies in 2012. The total interest cost on public debt as a percentage of the GDP in 2012 reduced to 5.39 per cent from 5.45 per cent in 2011. Further, the
TABLE 15 T-BILL PRIMARY AUCTION WEIGTHED AVERAGE YIED RATES Period 91 days 182 days 30/12/2011 8.68 8.71 30th March 11.00 11.06

Interest Cost on Foreign Debt

The interest cost on domestic debt increased by 10.25 per cent to Rs. 317.7 billion in 2012 from Rs. 288.1 billion in 2011 as a result of the increase in average domestic debt stock and also the increase in Primary Market Weighted Average Yield Rate (PMWAYR) on T-bills and T-bonds during the first three quarters of 2012. The domestic debt stock that stood at Rs. 2,804.1 billion at the end of 2011 increased by 15.29 per cent to Rs. 3,232.8 billion at the end of 2012. As shown in the Table 15, weekly PMWAYR on 91-day, 182-day and 364-day T-bills increased sharply by 276 bps, 441 bps and 405 bps up until 14th September 2012 and thereafter, gradually declined towards the year end.

The total interest payments on foreign debt increased by 32.49 per cent or Rs. 22.3 billion to
Per cent per annum 29th June 11.12 12.61 2012 14th September 11.44 13.12 13.36 28th December 10.00 11.32 Central Bank of Sri Lanka 11.69

364 days

9.31

11.32

12.88

Public Debt Management in Sri Lanka

21

TABLE 16 PRIMARY MARKET WEIGHTED AVERAGE INTEREST COST ON DOMESTIC BORROWING (a) Per cent Instrument T-bills T-bonds 2010 8.32 9.45 2011 7.31 8.64 2012 11.81 12.46 -

Rupee Loans(b)

Source: Central Bank of Sri Lanka (a) Weighted average interest cost = (Amount issued*Yield) / iiiiiiiTotal amount issued (b) No new Rupee loans were issued in 2010, 2011 and 2012

in 2012, the life span of domestic debt service obligation of the government enhanced by six years from 2026 to 2032 in 2012. Similarly, as a result of infrastructure related long term borrowings of the government, life span of the external debt service obligations of the government extended up to 2051 at the end of 2012.
CHART 14 DOMESTIC CURRENCY DEBT SERVICE OBLIGATIONS 900 800 Rs. billion 700 600 500 400 300 200 100 0 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031
Repayment Interest Total

Rs. 90.8 billion in 2012 from Rs. 68.6 billion in 2011. Interest cost on T-bills and T-bonds held by foreigners and other foreign loans, including sovereign bonds and project loans, in 2012 amounted to Rs. 29.8 billion and Rs. 61 billion respectively in comparison to Rs. 24.3 billion and Rs. 44.3 billion respectively in 2011. During 2012, the increase in interest payment on T-bills and T-bonds held by foreigners by 22.77 per cent was mainly due to the sharp increase in such holdings in 2012 following the increase in the ceiling on such holdings. The ceiling for investment by foreigners in T-bills and T-bonds was increased to 12.50 per cent from 10 per cent in December 2011. Rupee value of interest cost on sovereign bonds in 2012 increased by 64.91 per cent to Rs..25.6 billion in 2012 against Rs. 15.5 billion in 2011. This was mainly due to the increase in interest cost on the sovereign bonds owing to the 4th sovereign bond of USD 1,000 million issued at 6.25 per cent in 2011. The interest cost on other foreign loans, including project related multilateral, bilateral, and commercial loans, increased by 22.92 per cent to Rs. 35.4 billion in 2012 compared to Rs. 28.8 billion in 2011. The depreciation of Sri Lanka Rupee against major currencies in 2012 also contributed to the increase in rupee value of the interest cost on foreign debt during the year.

With respect to future debt service obligations of domestic currency debt of the government, 73.38 percent of the total domestic currency debt obligation or Rs. 2,456.8 billion is maturing in the next five years. In relation to the foreign currency denominated debt obligations of the government, debt service obligations are relatively more distributed across the maturity period. Accordingly, the total of foreign currency denominated debt service payments to be made during next five years are estimated to be Rs. 1,285.1 billion or 31.37 per cent of the total of foreign currency denominated debt outstanding and the contracted future disbursements at the end of 2012.

CHART 15 FOREIGN CURRENCY DEBT SERVICE OBLIGATIONS 350 300 Rs. billion 250 200 150 100 50 2013 2018 2023 2028 2033 2038 2043 2048
Repayment Interest Total

Future Debt Service Obligations


In view of the issuance of T-bonds with a time-to-maturity of 20 years in the domestic market

22

Public Debt Management in Sri Lanka

4. Market Operations in 2012


Primary Market Operations
The Central Bank of Sri Lanka (CBSL), as the fiscal agent of the government, continued to engage in activities relating to the issuance of domestic debt on behalf of the government. This entailed the issue of a variety of government securities namely, Treasury bills (T-bills), Treasury bonds (T-bonds) and US dollar denominated Sri Lanka Development Bonds (SLDB) in the domestic market at the lowest possible costs while enhancing the investor confidence in the government debt instruments. T-bills, on net basis, amounted to Rs. 10.1 billion (face value) in 2012. The yield rates of T-bills in the primary market showed a rapid upward movement during the first six months of 2012. This was attributed to the increase in policy rates twice and high dependence on domestic sources for the financing needs of the government in the first half of 2012. As a result, the primary market yield rates for 91-day, 182-day and 364-day maturities increased by 244 bps, 390 bps and 357 bps, respectively, during the first half of 2012 in comparison to end 2011. Consequent to the increase in primary market yield rates, the investor preference was shifted towards the shorter end of the yield curve thereby increasing the demand for short term T-bills. As a result, CBSL was compelled to accept more of 91-day T-bills and less of 182day and 364-day T-bills during the first 6 months of 2012, sometimes in place of maturing T-bonds as well. With the emergence of refinancing risk due to high dependence on short-term borrowings, CBSL adopted several measures to arrest the situation. Among those measures, attracting investments in to long dated T-bonds at the primary market by discontinuation of the facility for direct placements in T-bills at the Primary Market Weighted Average Yield Rate (PMWAYR) of the latest primary auction, encouraging investments in to T-bonds by allowing more flexibility at the primary auctions of T-bonds to maintain competitive yield rates, which were consistent with macroeconomic fundamentals are a few with significance. With the aforesaid measures, the rapidly

T- bill Primary Market


T-bill was the key debt instrument in mobilizing short-term funds for Treasury cash management. The uniformity of the T-bill issue was maintained in 2012 by weekly issuing three maturities of T-bills, i.e. 91-day, 182-day and 364day. The gross value of the T-bills issued in all three maturities in 2012, amounted to Rs.1,650 billion, on face value basis, in comparison to Rs. 1,164.6 billion in the previous year. Of this, Rs..1,602 billion was issued in place of maturing T-bills, while the balance of Rs. 48 billion was issued on account of new T-bills. At end 2012, the face value of T-bill outstanding stood at Rs. 709.3 billion in comparison to Rs. 661 billion at the end of 2011. During the year, Public Debt Department (PDD) conducted 52 T-bill auctions. As at 31 December 2012, total foreign investments in T-bills amounted to Rs. 80.2 billion compared to Rs. 70.1 billion as at end 2011. The inflow of foreign investments to
Public Debt Management in Sri Lanka

23

increasing trend in T-bill primary auction yield rates decelerated gradually towards mid-September 2012. Accordingly, the primary market yield rates from end June 2012 to mid-September 2012, increased only by 32 bps, 51 bps and 48 bps for 91CHART 16 T-BILL PRIMARY AUCTION YIELDS 14.0 13.0 Per cent 12.0 11.0

T- bond Primary Market

be noted in Table 17 that the increased demand for shorter term T-bills was gradually shifting towards longer tenors during latter part of 2012.

10.0 9.0 Jan-2012 May-2012 Jun-2012 Jul-2012 Apr-2012 Oct-2012 Nov-2012 Aug-2012 Sep-2012 Dec-2012 Feb-2012 Mar-2012 8.0

91 Days

182 Days

364 Days

day, 182-day and 364-day maturities, respectively as indicated in Chart 16. The primary market yield rates on T-bills decreased gradually during the fourth quarter of 2012 mainly due to the lower borrowing requirement of the government and also due to the 25 bps easing of the policy rate in December 2012. The primary market yield rates for T-bills of 91-day, 182-day and 364-day maturities, declined by 144 bps, 180 bps and 167 bps, respectively, at end 2012 when compared with the levels prevailed at midTable 17

T-bond outstanding during the year increased by Rs. 394 billion. Accordingly, the total T-bond outstanding amounted to Rs. 2,413 billion, on face value basis, an increase of 19.51 per cent when compared with 2011. PDD conducted 24 T-bond auctions during the year of 2012. Taking into account the market appetite and portfolio management considerations, 11 new T-bond series were introduced, targeting short, medium and long term segments of the yield curve. These issuances enabled to increase ATM of T-bond portfolio to 3.99 years at end 2012 from 2.90 years from the preceding year end. In addition, the existing bond series were reopened after considering the market conditions, investor preference, the maturity structure of the debt portfolio in mitigating refinancing and rollover risks, and to maintain a benchmark yield curve. In line with the rapid upward movement in T-bill rates and the heavy reliance on the domestic market to finance the governments cash flow requirements during the first half of 2012, the T-bond yields showed an upward trend during this period. However, measures adopted by CBSL

Treasury bill Primary Auction Details (Rs. million) 2012 Q1 Q2 Q3 Q4 91 days Offered 29,000 50,000 45,500 25,000 Accepted 70,844 76,093 38,763 15,686 % 244 152 85 62 Offered 43,000 69,000 76,500 64,000 182 days Accepted 19,755 86,763 144,236 77,657 % 46 126 188 121 Offered 64,000 77,000 77,000 88,000 364 days Accepted 30,112 33,377 32,130 102,925 % 47 43 42 117

Source: Central Bank of Sri Lanka

September 2012. As a result, the investor demand for T-bills was shifted towards 364-day maturity allowing CBSL to extend the Average Time to Maturity (ATM) of the T-bill portfolio from 0.31 years at end 2011 to 0.38 years at end 2012. It can

to address the issues in T-bill market during the second half of the year, also affected the T-bond market. Despite this increasing trend, PDD was able to issue a T-bond with a maturity of 20 years at a yield rate of 11.00 per cent. This extended the
Public Debt Management in Sri Lanka

24

benchmark yield curve by 5 years more to 20 years. As a result of issuing a large volume of long dated T-bonds during fourth quarter of 2012, ATM of T-bond issuance increased to 6.86 years from 5.65 years in 2011. This increase in ATM was made possible mainly due to increased demand from foreign investors and captive sources that locked their investments in long dated securities, mainly for held-to-maturity. Foreign investment in government securities reached 12.41 per cent against the approved threshold of 12.50 per cent of total value of T-bills and T-bonds outstanding, reflecting a strong investor confidence in the Sri Lankan economy supported by attractive yields. During the year, the total inflow of foreign investments in T-bonds, on net basis, amounted to Rs. 118.1 billion (face value). The foreign inflow of investments helped to increase the liquidity and stabilize interest rates in the domestic market thereby easing the pressure on the government borrowing program. As at 31 December 2012, total foreign investments in T-bonds amounted to Rs. 317.6 billion, which was a significant increase when compared to Rs. 199.5 billion in 2011.

of new bids in 2012. Accordingly, the total value of outstanding SLDB stock at the end of 2012 amounted to USD 1,754 million in comparison to USD 1,614 million at the end of 2011. These funds were raised at yields of six months London Inter Bank Offered Rate (LIBOR) plus a weighted average margin ranging from 385 bps to 415 bps. Licensed Commercial Banks (LCB) were the main investors in SLDBs and most of such investments are held to maturity.

International Sovereign Bond


The fifth International Sovereign Bond (ISB) issuance of the Government of Sri Lanka (GOSL) was made in July 2012 to raise USD 1,000 million with a maturity of ten years. Resulting from strong investor confidence due to benign macroeconomic conditions and healthy sovereign ratings given by three rating agencies, the final order book stood at USD 10.5 billion, recording an oversubscription ratio of 10.5 times. It was the largest order book in value as well as the largest in number of investors in an order book for an international sovereign bond issue by GOSL. The previous four issuances of international sovereign bonds by GOSL in 2007, 2009, 2010 and 2011 were oversubscribed 1.6 times, 6.8 times, 6.5 times and 7.5 times, respectively. With the 2012 ISB issue, Sri Lanka succeeded in achieving a cost of funds, which was progressively lower compared to the previous sovereign bond issuances. Sri Lankas previous four issuances in 2007 (5-year), 2009 (5-year), 2010 (10-year) and 2011 (10-year) were priced at yields of 8.25 per cent, 7.40 per cent, 6.25 per cent and 6.25 per cent, respectively. The number of international investors at the latest sovereign bond issue increased up to 425 reflecting an increased interest from investors around the world on Sri Lankan sovereign papers. The number of investors at previous bond issues were 135, 260, 310 and 315 respectively, in 2007, 2009, 2010 and 2011, respectively. It is also important to note that the sovereign bond was issued at a time when international capital markets

Sri Lanka Development Bonds


The total value of funds mobilized through the issuances of SLDBs during 2012 amounted to USD 456.6 million in comparison to USD 547 million in 2011. The primary auctions in SLDBs
TABLE 18 SLDBs ISSUED DURING 2012 Date of Issue 26-Mar-12 26-Mar-12 2-Jul-12 24-Sep-12 Total Amount Accepted (USD million) 74.5 12.0 229.0 141.1 456.6 Period (Years) 3 4 3 3 WA Margin % 3.85 4.15 4.10 4.00

Source: Central Bank of Sri Lanka

in 2012 were mainly aimed at the re-issuance of maturing SLDBs totalling to USD 317 million. However, in view of the high demand by investors, the government decided to accept USD 140 million
Public Debt Management in Sri Lanka

25

were overshadowed by the European sovereign debt crisis. In spite of this situation, the 10-year bond maturing in 2022 was priced at 5.875 per cent, the lowest price received compared with the previous bond issues. This issue enabled Sri Lanka to establish a 10 year benchmark in the international market that would help the corporate sector who desire to borrow from the international capital market to meet their funding requirements in their future endeavours.

government securities decreased to 17.7 times in 2012 from 24.4 times in 2011. However, it was higher than the average turnover ratio (17.1 times) over the 2006 - 2012, as given in Table 20.
Table 20 2006 9.8 times

Turnover Ratios 2007 13.2 times 2008 16.0 times 2009 16.1 times 2010 22.5 times 2011 24.4 times 2012 17.7 times

Secondary Market Operations


The total volume of government securities (T-bills and T-bonds) transacted during 2012 on outright basis amounted to Rs. 4,242 billion, reflecting a marginal decrease of 2.39 per cent, in comparison to the volume of Rs. 4,347 billion in 2011. Similarly, the total volume of government securities transacted on Repurchase and Reverse Repurchase basis amounted to Rs. 31,678 billion reflecting a substantial decrease of 35.79 per cent from its Rs. 49,332 billion in 2011, as given in Table 19.
Table 19

Source: Central Bank of Sri Lanka

The top 10 traded T-bonds on outright and repurchase basis amounted to Rs. 13,121 billion, which accounts for 58.8 per cent of the total volume of transactions during 2012, as given in Table 21.

Secondary Market Yield Rates


Yield rates of government securities in the secondary market increased during the first 8 months of 2012, responding to several factors such as the increase in policy rates by CBSL, increase in the borrowing requirement of the government especially in the first half of the year, liquidity shortages and higher inflation expectation. T-bill yields were increased at the end of August 2012 by 277 bps, 433 bps and 400 bps in 91-day, 182-day and 364-day T-bills, respectively, when compared to end December 2011. The yields of T-bonds ranging from 2 15 years increased at end August 2012, in a range of 396 bps to 450 bps when compared to end December 2011. However, due to several measures introduced by CBSL in the third quarter and the easing of the policy rates on 12 December 2012, the yield rates on government securities in the secondary market declined, reversing the trend that was noted at the beginning of the year. As a result, T-bill yields in the secondary market at end December 2012 reduced by 129 bps, 185 bps and 161 bps in 91day, 182-day and 364-day maturities, respectively, when compared to their peak at end August 2012. The secondary market yields of T-bonds ranging from 2 15 years at end December 2012 declined in a range of 189 bps to 250 bps when compared to end August 2012. This downward shift in
Public Debt Management in Sri Lanka

Secondary Market Transactions T-Bill Year 2011 2012 Outright Purchases/ Sales 2,366.1 2,472.3 Repo/Rev. Repo 22,657.6 14,392.9 T-Bond Outright Purchases/ Sales 1,980.6 1,770.0

Rs. billion Repo/Rev. Repo 26,674.8 17,284.9

Source: Central Bank of Sri Lanka

This decline of transaction volume was mainly resulted from the increasing interest rate scenario in the market that prevailed over the first three quarters of the year. Majority of the investors were willing to hold their government securities until maturity expanding their investment portfolios whilst contracting trading portfolios due to the reluctance to book marked-to-market losses. In addition, large investments made by captive sources and foreign investors were also made with the intention of holding such investments until maturity. Due to such reasons the turnover ratio of

26

Table 21

Top Ten Traded T-bonds on Outright and Repurchase basis by Values 2011 Series 07.50%2013A 10.50%2013A 06.85%2012B 11.00%2015B 13.50%2012B 06.60%2014B 06.90%2012A 07.00%2014A 06.85%2012A 06.50%2015A ISIN LKB01013H012 LKB00613D019 LKB00612J158 LKB00615I013 LKB00412G019 LKB00414F017 LKB00212H011 LKB0414C014 LKB0612D151 LKB0515G159 Values 9,071,502 3,730,792 2,950,805 2,058,486 1,690,930 1,296,887 1,132,666 959,497 936,393 853,464 Series 11.50%2013A 07.50%2013A 08.00%2022A 08.00%2032A 11.75%2015A 07.50%2013B 07.00%2014A 08.00%2017A 13.50%2013A 06.85%2012B 2012 ISIN LKB00413F159 LKB01013H012 LKB01022A018 LKB02032A016 LKB00615C156 LKB01013K016 LKB00414C014 LKB00517A018 LKB00413B018 LKB00612J158

Rs. million Values 2,223,824 1,596,029 1,543,361 1,263,070 1,188,698 1,098,814 1,083,817 1,080,545 1,037,317 1,005,537

secondary market yield rates was contributed by the unavailability of T-bond issuances in the primary market due to limited borrowing requirements of the government in the latter part of the year.

Source: Central Bank of Sri Lanka

Public Debt Management in Sri Lanka

27

Box 2 - Enhancing the Safety of Investors in Government Securities


Central Bank of Sri Lanka (CBSL) as the fiscal agent of the government is primarily responsible for ensuring that the governments financial needs are met at the lowest possible cost consistent with a prudent degree of risk. The public confidence in the integrity of the government securities market (G-sec market) is imperative for achieving the above objective. Safeguarding the interest of investors is the foremost requirement for enhancing and sustaining public confidence in G-sec market. CBSL has a statutory responsibility to safeguard the interest of investors in government securities, not only for achieving the said objective but also to ensure the stability of the entire financial system of the country which is the backbone of the economy. Accordingly, CBSL has introduced a number of measures to improve the legal framework and the institutional arrangements centered on preserving the objective of safeguarding investor safety in government securities. Investor protection broadly consists of the legal framework and organizational arrangements designed to protect the rights of customers, fair trade competition and the free flow of perfect information in the marketplace. In particular, investor protection in financial services has gained more importance recently with the painful outcomes of global financial crisis. The experience of financial crisis emphasized the need for more effective measures for investor protection since investors need to deal in more sophisticated and complex financial markets. The availability of information has grown both in quantity and complexity and the pace of change, in terms of new product developments, product innovations, and technological advances also have increased dramatically. Existing Investor Protection framework in Sri Lanka Key measures taken by CBSL over the years to enhance the soundness and effectiveness of investor protection policy framework are; Strengthening the legal framework governing G-sec market: CBSL and the Ministry of Finance and Planning instituted several amendments to the Local Treasury Bills Ordinance (LTBO) and the Registered Stock and Securities Ordinance (RSSO) which govern the G-sec market in Sri Lanka by issuing several Regulations and Directions to regulate & streamline the market activities in government securities. These regulations and directions mainly focus on capital, capital adequacy and other prudential and operating requirements of Primary Dealers (PDs), the activities and businesses which can be carried out by PDs, mandatory contracts, maintaining of accounts and records on PD activities, reporting and other obligations to CBSL, maintaining customer accounts in Central Depository System (CDS), maintaining confidentiality in respect of dealings with customers. Appointment and supervision of PDs: CBSL has the sole responsibility to appoint PDs. In this process, CBSL considers the applications for primary dealership only after careful review of all key areas with regard to ownership, management, experience dealing in securities, financial soundness, legal position etc. Further, CBSL put in place a comprehensive supervisory mechanism through on-site and off-site surveillance to enhance safety and soundness of the PDs who act as the intermediary and dealers of the G-sec market. The supervision function includes regular monitoring of the activities of PDs and their compliance with

28

Public Debt Management in Sri Lanka

the provisions in the said Regulations and Directions. Also CBSL evaluate the risks and the risk management arrangements and internal control systems of PDs. Title Registry of Securities: CBSL maintains a comprehensive title registry of the government securities in an electronic form in Central Depository System (CDS) which records the title of individual ownership of each security. The PDs are legally bound to maintain accounts for each and every customer in CDS and updating the accounts immediately when customers obtain legal ownership of government securities. CBSL issues statements on payments and transactions (if any) on monthly basis and holding of securities on semiannual basis to each customer to confirm their transactions and balances of government securities recorded in the CDS. Dealing with Customer Complaints: CBSL handles all customer complaints regarding the activities of the PDs and it has the power to investigate any activity of a PD, if required, through spot examinations. Customer Awareness: CBSL, through publications, seminars and press releases enhances the awareness of the customers in the G-sec market with a view of enabling the investors to have easy access to financial education, and thus promoting government securities as a secure investment option. Why do further improvement of investor protection important? Safeguarding the interest of the investors, building up a healthy relationship between PDs and their customers and improving the customer confidence in the PD system are prerequisites for promoting growth and stability in the G-sec market. However, careful design and implementation of a sound and robust investor protection framework is crucial to realize such benefits, especially in G-sec market in Sri Lanka, particularly due to the following: Sri Lanka G-sec market is yet to reach its full potential and thus requires further expansion and diversification. Achievement of such potential directly depends on enhanced trust of the current and future investors. The imbalance of power in terms of information and resources between PDs and the investors in G-sec market can be minimized through speedy and convenient access to them. Most of investors in G-sec market of Sri Lanka have low level of financial literacy mainly with regard to the risks and rewards attached to government securities and have poor knowledge on their rights as investors in government securities. Further improvements envisaged to promote investor protection Though the investors interest in government securities are currently safeguarded, CBSL perceive that further improvements in investor protection in G-sec market is needed in the following areas with the anticipated future developments in the countrys economy. Requirement for defining Fit and Propriety criteria for Directors and key officers of PDs.
Public Debt Management in Sri Lanka

29

Transparency in charges imposed by PDs on customers.

The rights and obligations of both investors and PDs.

Requirement for disclosing all information to investors regarding different products in G-sec market, their interest rates, underlying terms and conditions and their risk and rewards.

Procedure for making investor complaints and handling the same. Enhancing investor knowledge and awareness in G-sec market. Reducing information asymmetry in the G-sec market.

In order to address the areas mentioned above, it is proposed to; Issue a direction on Fit and Propriety criteria for directors and senior staff of primary dealers which aim at enhancing trustworthiness of the personnel who manage PD businesses. Fit and Propriety criteria defines minimum qualifications required for the above mentioned officers of PDs; and Introduce a Customer Charter to strengthen the investor safety and protect rights and obligations of the investors in the G-sec market. The customer charter is a code of best practices which incorporates the rights and obligations of the investors and primary dealers with a view of protecting and building confidence in conducting transactions in G-sec market.

30

Public Debt Management in Sri Lanka

5. The Medium Term Debt Management Strategy 2013 2017 and Issues and Challenges
Overview
Medium Term Debt management Strategy (MTDS) is the plan that the Central Bank of Sri Lanka (CBSL) intends to implement over the next five-year (medium) term in order to achieve a desired composition of the government debt portfolio. It provides a framework for formulating and implementing the debt management strategy of the CSBL for the next five years. MTDS is primarily focused on determining the appropriate composition of the debt portfolio, taking into account macroeconomic indicators and market environment. MTDS for 2013-2017 operationalizes the public debt management objectives of CBSL, which have been formulated with consideration of relative cost and risks involved, linkages with other key macroeconomic policy objectives/ targets, improved debt sustainability and the need for the development of the domestic debt markets. MTDS eventually aims at containing the risks to the governments balance sheet while minimizing the potential public debt-related burden and maximizing the resource availability for other sectors of the economy. However, the underlying debt management targets articulated in the current MTDS is subject to an ongoing review in line with other macroeconomic and external sector developments that may be forthcoming as the time passes on. Yet, attempts are made to have a better focus on achieving the targets stipulated in MTDS. MTDS for 2013 2017 has been clearly articulated in the Road Map - 2013, Monetary and Financial Sector Policies for 2013 and beyond
Public Debt Management in Sri Lanka

put into a clear action plan as delineated in CBSL, Strategic Plan 2013 2017.

Expected Benefits of MTDS


MTDS is expected to provide a framework within which the decision makers could make informed choice on how the governments financing requirement should be met under a given set of constraints and potential risks. Such a methodical approach to government debt management related decision making would strengthen the efficiency and effectiveness of the debt management function of CBSL as the fiscal agent of Government of Sri Lanka (GOSL). Accordingly, the following benefits are expected to be accrued through MTDS. (a) Evaluate the cost-risk trade-offs: MTDS allows well considered decisions after identification of, and adequate analysis of costs and risks associated with alternative strategies available for funding the governments requirement. CBSL believes that clearly defined medium-term strategic goals of MTDS would avoid the possibility of making one sided decisions only on the basis of the cost, or the short-term expediency. In spite of limited alternative sources available for meeting the financing needs, MTDS allows CBSL, to identify, estimate, and monitor risks associated with such alternative funding sources. Further, it provides an opportunity to evaluate the impact of such alternative sources on the overall risk profile of public

(b) Identify and manage risks:

31

debt of the country. The identification of risks associated with funding alternatives well in advance provides CBSL with an opportunity to put in place appropriate risk tolerance levels and risk mitigants to take the advantage of such alternative funding opportunities. In the process of identification of suitable risk mitigates, MTDS facilitates consideration of various options for risk mitigation, including the development of the domestic debt markets. (c) Coordination: MTDS facilitates proper coordination of debt management with fiscal and monetary policies, helping not to compromise various policy objectives of the government and CBSL. MTDS framework allows understanding the constraints, including domestic debt market development and balance of payments issues. Such smooth policy coordination allows each agency to focus more clearly on its core objectives and also helping to achieve transparency and accountability on the management of the public debt of the country separate from fiscal and monetary policies.

market for government securities; (c) Diversification of investor base; (d) Enhancing the efficiency of the secondary market by development of a dynamic benchmark yield curve for a longer period; and (e) Enhancing the transparency in public debt management.

Targets as set out in MTDS (2013 2017)


The targets, as set out in MTDS for 20132017 as follows (a) Enhancement of Debt Dynamics (b) Issuance of a Half-yearly Treasury bond (T-bond) calendar; (c) Enhancing the competition at the primary market for government securities; (d) Upgrading the infrastructure of the domestic debt market supported by Electronic Trading (E-Trading) platform together with a central clearing arrangement; (e) Increasing the secondary market making mechanism for government and corporate debt instruments.
table 22 MTDS targets (end of year) Annual Targets 2013 75.0 3.5 2014 71.1 3.7 2015 67.7 4.0 2016 64.3 4.5 2017 60.0 5.0

(d) Identification of constraints:

Extant MTDS allows CBSL to identify the constraints that affects its role as the fiscal agent of the government well in advance so that suitable remedial measures could be formulated and implemented to ease such constraints.

Objectives of MTDS
The primary objective of MTDS is to ensure that the governments financial needs are met at the lowest possible cost over the medium term, consistent with a prudent level of risk. In addition, the following secondary objectives have been set under MTDS to support the primary objective by reducing both cost and risk of government borrowing. (a) Enhancing the efficiency of the primary market for government securities; (b) Broadening and deepening of the secondary

Indicator Debt/GDP Ratio (%) Average Time to Maturity (years) Ratio of Short Term Domestic Debts to Total Domestic Debts (%) Ratio of Foreign Currency Debts to Total Domestic Debts (%)

2012 80.2 3.2

25.0

23.0

22.0

21.0

20.0

20.0

43.0

37.0

35.0

33.0

30.0

30.0

Sources: Central Bank of Sri Lanka

32

Public Debt Management in Sri Lanka

Issues and Challenges in Implementation of MTDS


(a) Non-availability of a dynamic iiiiiibenchmark yield curve
(i) A dynamic benchmark yield curve is an essential element for a well-functioning government securities market. In order to reduce the refinance risk and the cost of borrowing, it is needed to develop the yield curve for longer tenors by issuing benchmark securities on a periodic basis and by minimizing fragmentation. Further, limiting the number of issuances and increasing the issue size of securities will improve market liquidity in addition to helping the emergence of benchmark securities in the market. (ii) Currently, more than 80 percent of the secondary market trades in government securities take place in the Over-theCounter (OTC) market. The underlying prices and yields of these transactions are not reflected in the current yield curve and thereby creating asymmetry in market information. (iii)The existence of an OTC market is the result of the reluctance of market participants to freely trade among themselves. This was due to the underlying credit and settlement risks. Currently, sellers/buyers of government securities do not transact with buyers/sellers if there are no pre-determined internal credit limits. On the other hand, the above has created a substantial discrimination among various sub sectors in the market. For example, licensed banks refrained from transacting with Primary Dealers (PDs), even with 100 per cent collateralized basis. (iv)As a result of the (i) and (ii) above, the volume of secondary market transactions

has been stagnated while the foreign participation is also constrained.

(b) Lack of secondary market liquidity in iiiii.terms of rupee leg and the security leg
(i) Since 2004, settlements of Government securities secondary market transactions have been made through Real Time Gross Settlement System (RTGS). RTGS System, a Delivery Versus Payment (DVP)-I settlement system, is a computer based fund settlement system which processes and settles each payment instruction individually and irrevocably on real time basis using funds in the participants RTGS Settlement Accounts in RTGS System. (ii) As per the current DVP-I settlement arrangements, each secondary market transaction in government securities is required to be settled on one-to-one gross basis where market participants are expected to maintain substantial amounts of liquidity in both security and rupee terms. As a result, the secondary market transaction volume in government securities has been stagnated at a very low level for several years.

(c) Exclusivity in primary auction system iiiiiand poor primary auction participation
(i) Primary auctions in government securities are currently made only through the dedicated PDs. There are 12 PDs. These PDs are expected to act as the intermediary between the issuer and the investors in government securities. Hence, PDs have to act as the market makers for Government securities. (ii) However, due to the shallow and illiquid secondary market for government securities, PDs have not been able to perform the market making role. Specially,

Public Debt Management in Sri Lanka

33

non-bank PDs have become very passive investors in Treasury bills (T-bills) and T-bonds while bank-PD units have dominated the primary auctions. (iii) Lack of secondary market demand for government securities has resulted in PDs carrying a large stock of T-bills and

T-bonds held in proprietary portfolios. When market interest rate is increasing, all PDs tend to accumulate large mark-tomarket losses refraining them from actively trade in government securities.

34

Public Debt Management in Sri Lanka

Box 3 - Understanding Key Linkages Between MTDS and Other Macroeconomic Sectors for an Optimal Borrowing Plan
The Medium-Term Debt Management Strategy (MTDS) provides a framework for formulating and implementing a debt management strategy for the medium term. It is primarily focused on determining the appropriate composition of the debt portfolio, taking into account macroeconomic indicators and market environment. MTDS is useful for illustrating governments cost and risk tradeoffs associated with different debt management strategies and for managing the risk exposure embedded in a debt portfolio, in particular the potential variation in debt servicing costs and its budgetary impact1. MTDS is thus a systematic approach to decision making which helps authorities in evaluating cost-risk trade-offs, identifying and managing risks associated with debt portfolio and in addition, beneficial with respect to coordination with other sectors such as fiscal and monetary management. Aligned with this definition, country-specific conditions also call for analyzing the impact of MTDS on macroeconomic indicators and market environment, highlighting the significance of MTDS as a powerful tool in striking a macroeconomic balance2. For this purpose, it has been highly recognized that authorities should understand how MTDS fits in with macroeconomic framework via the important links with other key policy areas. Fiscal planning & debt sustainability, monetary policy, exchange rate policy & Balance of Payment, market developments and borrowing plan are key policy areas that have important inter-linkages with MTDS. Nevertheless, responsibilities and accountability of debt management decisions should be defined separately from that of fiscal or monetary. Further, the process of MTDS development itself highly signifies examining the implications of MTDS on other key policy sectors. Usually, preparation of MTDS follows eight-step sequence. This involves identifying objectives of the debt manager, analyzing cost and risk of existing debt portfolio and strategy, analyzing potential funding sources, identifying baseline projections in other key areas (fiscal, monetary, external and market), reviewing longer-term structural factors of design and strategy, ranking alternative strategies, reviewing implication of proposed strategies on other key policy sectors and finally agreeing on the best option with stakeholders3. Thus, it is imperative in identifying the key inter-linkages between MTDS and other sectors as it is an integral part of eight-step development process.

1 The World Bank definition. Stable URL : http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTDEBTD EPT/0,,contentMDK:21718429~menuPK:64166739~pagePK:64166689~piPK:64166646~theSitePK:469043,00. html

2 Please refer Developing a Medium-Term Debt Management Strategy (MTDS) Guidance Note for Country Authorities. The World Bank-IMF Joint Publication. 2009, for more details.

3 As documented in Developing a Medium-Term Debt Management Strategy (MTDS) Guidance Note for Country Authorities. The World Bank-IMF Joint Publication. 2009.

Public Debt Management in Sri Lanka

35

Figure 1: Key Inter-linkages between MTDS and other key policy areas
Cost - Risk Analysis

Macro, market and other constraints

Information on cost and risk

MTDS Formulation

Consistency / Constraints

Market development initiatives

Inforamtion on cost and risk


Macroeconomic Framework/ Debt Sustainability

Demand constraints/ Pricing factors


Financing Sources / Market Development

Desired Instrument composition Budget projections Market development factors

Annual Borrowing Plan

Figure 1 shows how inter-linkages between MTDS and other key policy areas could be viewed with a new systemic approach4. Fiscal policy is a tool employed by governments to influence the whole economy by adjusting levels of government spending whereas central banks adopt monetary policy to influence the money supply. However, these two policies are used in various combinations in an effort to direct a countrys economic goals. The exchange rate policy or regime is the way a country manages its currency in respect to foreign currencies and the foreign exchange markets. The balance of payment compares exports and imports, including all financial exports and imports in US Dollars. Other two important policy areas are market developments and borrowing plan. Formulation of debt issuance strategies, i.e., determining the portfolio composition of government debt, is therefore a complicated process since there is uncertainty regarding the movements of variables that affect the outcome of the decisions made and vice versa. Therefore, understanding how the model depicted under Figure 1 works requires thorough understanding of core links of MTDS with macroeconomic perspectives. Consequently, a number of debt management offices in recent years have implemented stochastic simulation models in order to analyze these complex systems of debt strategy formulation and to evaluate alternative policies. However, in view of the importance of understanding the core links, it seems very much vital for the debt managers to review such simulation models in order to improve its comprehensiveness. Accordingly such models may be developed in order to assess the real impact on MTDS by other key macroeconomic sectors and then to roll down implications to an optimal borrowing plan through MTDS.

4 Adopted from Developing a Medium-Term Debt Management Strategy (MTDS) Guidance Note for Country Authorities. The World Bank-IMF Joint Publication. 2009.

36

Public Debt Management in Sri Lanka

6. Risk Management in Public Debt and Sustainability of External Debt


Risk Management is an Integral Part of the Public Debt Management
The public debt portfolio is the largest single debt portfolio of the country. In view of the possible consequences of imprudent public debt management, the Central Bank of Sri Lanka (CBSL) considers the risk management in public debt as an important tool for achieving the strategic debt targets articulated in the Medium Term Debt management Strategy (MTDS). Hence, public debt related medium term risk tolerance as well as portfolio preferences concerning the trade-off between expected cost and risk have been specified and clearly articulated in MTDS while annual risk tolerance and portfolio preference have been duly acknowledge in the annual borrowing plan. The annual borrowing programme of the government is prepared aiming at the optimal public debt portfolio on the basis of cost-risk criteria so as to hedge the financing needs of the government. In deciding the various debt instruments, the relative impact of the risk and costs of such instruments on the possibility of missing medium term debt management targets have been considered. CBSL has put in place a robust system in managing the risks pertaining to the public debt portfolio. This includes predetermined risk tolerance limits and portfolio preference, independent risks identification, measurement, monitoring and reporting by the Middle Office of Public Debt Department (PDD) in line with internationally accepted best practices and norms. Further, necessary steps have been taken to put in place an advanced, computer aided, risk
Public Debt Management in Sri Lanka

management system by 2014.

Key Risks Pertaining to the Public Debt Portfolio


Refinancing/rollover risk and market risk (exchange risk and interest rate risk) continue to be the key risks that CBSL dealt in 2012 in managing the countrys public debt portfolio. However, the possible incidences of other risks such as liquidity risk, operational risk, legal risk and reputational risk have been adequately factored into the risk management framework with suitable risk mitigating techniques.

Analysis of the Risk Profile of the Public Debt Portfolio


Refinancing Risk
Refinancing or rollover risk is the likelihood that the reissue of existing debt would be at an unusually high cost or, in the extreme case, inability to reissue at all. Thus, the risk, if materialized, could lead to, or exacerbate a debt crisis and thereby cause real economic losses, in addition to the purely financial effects of higher interest cost. Hence, managing the refinancing risk associated with the government debt portfolio continued to be important in 2012 too. CBSL considers two commonly used indicators for measuring the refinance risk i.e. Average Time to Maturity (ATM) (which is also commonly known as Average Residual Life) and the Ratio of Short-Term Debt to Total Outstanding

37

TABLE 23 RISK ASSESSMENT INDICATORS (AS AT END OF YEAR) Indicator Refinancing Risk Average Time to Maturity (yrs) Short-term (original maturity less than or equal to one year) / Outstanding debt (%) Interest Risk Duration (yrs) Average Time to Re-fixing (yrs) Floating Rate debt / Outstanding debt (%) Foreign Exchange Risk Share of Foreign Currency Commercial debt / Official Reserves (%) Share of Foreign Currency debt / Total debt (%) Other Foreign Investments in T-bills and T-bonds /Total T-bill and T-bond stock (%) (a) Provisional 10.06 12.43 70.98 44.09 76.42 43.02 2.35 27.40 1.83 2.35 3.23 26.98 1.89 3.51 9.12 8.04 8.26 18.47 8.75 6.78 7.68 23.76 5.41 14.97 3.76 4.96 8.14 5.74 14.70 3.88 5.30 10.22 Domestic Currency Debt 2011 2012 (a) Foreign Currency Debt 2011 2012 (a) Aggregate 2011 2012 (a)

Source: Central Bank of Sri Lanka

Debt. Further, the risk tolerance levels in terms of the two indicators for the medium term have been stipulated in the countrys MTDS. The refinancing risk indicators of public debt portfolio recorded healthy improvements in 2012. The overall ATM of the government debt portfolio increased to 5.74 years at end 2012 from 5.41 years at end 2011 mainly due to increase of ATM of domestic currency debt from 2.35 years at end 2011 to 3.23 years at the end of 2012 as a result of the issue of long term Treasury Bonds (T-bonds). The ATM of domestic currency debt portfolio remained less than 3 years since 2004. ATM of foreign currency debt decreased to 8.75 years as at the end of 2012 from 9.12 years at the end of 2011 as a result of the reduction of the relative share of concessional external borrowings in the total debt portfolio. As a result of Sri Lanka being elevated as lower middle income economy, there has been a gradual reduction in concessional borrowings, which are generally payable in a longer time horizon. The ratio of ShortTerm Debt to Outstanding Domestic Debt improved in 2012 mainly due to

the issue of longer-dated T-bonds for financing the government budget. The ratio of shortterm debt to outstanding domestic debt improved to 26.98 per cent by end of 2012 from 27.40 per cent at the end of 2011. Short-term foreign currency debt was insignificant compared to the total foreign currency loans outstanding at end 2012. Total shortterm debt as a percentage of total outstanding debt decreased marginally to 14.70 per cent at end 2012 compared to 14.97 per cent at end 2011 as a result of diminishing relative value of concessional loans stock.

Interest Rate Risk


Interest rate risk refers to the risk associated with changes in market interest rates on the cost of public debt servicing. For both domestic and foreign currency debt, changes in interest rates affect debt servicing costs on new issues, when fixedrate debt is refinanced and on floating-rate debt at the rate on re-set date. CBSL continue to use three indicators, namely, the duration of the debt stock, Average-Time-to-Refixing (ATR) and the Ratio of Floating Interest Rate Debt to Total
Public Debt Management in Sri Lanka

38

Debt for the management of interest rate risk in the public debt portfolio. Duration - An indicator of the weighted average of maturities of the debt stock. Duration of the overall public debt portfolio increased to 3.88 years as at the end 2012 from 3.76 years at the end 2011 mainly due to issue of longer dated T-bonds in 2012. ATR of the debt portfolio measures the average time in which debt coupons are re-fixed. For zero coupon bonds or bonds with fixed coupons, ATR is the residual life of the bond. For floating rate bonds the ATR is the time left until fixing of the next coupon. At end 2012, ATR of the overall debt portfolio increased to 5.30 years from 4.96 years at end 2011. ATR of foreign currency debt portfolio decreased to 7.68 years at end 2012 from 8.26 years at end 2011 due to the issuance of more floating rate debt including Sri Lanka Development Bonds (SLDBs) and project related bi-lateral loans. ATR of rupee denominated debt, however, increased substantially to 3.51 years as at the end of 2012 from 2.35 years at the end 2011 due mainly to issuance of fixed coupon long-term T- bonds in place of maturing T-bills. Floating interest rate debt to total debt increased to 10.22 per cent at end 2012 from 8.14 per cent at end 2011. Floating rate foreign currency debt to total foreign currency debt increased significantly to 23.76 per cent at end 2012 from 18.47 at end 2011. There was no domestic currency floating rate debt in the portfolio.

risk. In 2012, a careful assessment of the trade-off between cost and risk was made in deciding the optimal borrowing mix from domestic currency and foreign currency. The share of foreign currency denominated debt in the total debt decreased to 43.02 per cent at the end 2012 as envisaged in the MTDS from 44.04 per cent at the end 2011. The increase in the relative share of domestic currency denominated debt stock was mainly due to increased foreign investments in Treasury bills (T-bills) and T-bonds during the year. This has been achieved while maintaining the domestic bond market more liquid during the period under review thereby, striking a trade-off between costs of borrowing from domestic sources and exposure to foreign exchange risk.

Liquidity Risk
There are two types of liquidity risks affecting the public debt of a country. One refers to the cost or penalty investors in government debt securities face in trying to exit a position when the number of transactions has markedly decreased or because of the lack of depth of a particular market. The other form of liquidity risk, for the government/ borrower, refers to a situation where the volume of market liquidity can diminish quickly in the face of unanticipated cash flow/ debt maturity obligations or possible difficulty in raising cash through borrowing in a short period of time. A liquid market facilitates the issuance of large quantities of a debt instrument without significant movement in the interest rate/price. CBSL implemented several strategies in 2012 to minimize the liquidity risk associated with the public debt portfolio. Such strategies included the issuance of a dollar denominated Sovereign Bond amounting to USD 1,000 million with ten year tenure, issuing long-term T- bonds mainly in benchmark maturities, removing previously imposed restrictions on composition within the leeway for more foreign participation in longer dated T-bonds within the existing threshold of 12.50 per cent, increasing the demand for Government securities of Sri Lanka by enhancing

Exchange Rate Risk


Exchange rate risk arises due to adverse fluctuations in the exchange rate where, depreciation of domestic currency would increase the rupee value of debt servicing cost and the outstanding value of foreign currency denominated debt. CBSL continued to use the Ratio of Foreign Currency Debt to Total Debt to assess the degree of susceptibility of the debt portfolio to exchange rate
Public Debt Management in Sri Lanka

39

the confidence among foreign investors through awareness campaigns, maintaining sovereign ratings etc. Due to these measures, the domestic rupee market liquidity increased.

Sustainability of External Debt


In general, debt sustainability of a borrower is the ability to service its debt as they fall due without restructuring, defaulting or compromising its long-term goals and objectives. Maintaining the sustainability of external debt is vital for a country as it has limited options to settle financial obligations in foreign currencies. There are various indicators to determine the sustainable level of external debt. Each has its advantages and disadvantages, and there is no unanimity on adopting a sole indicator. These indicators are primarily in the nature of ratios, i.e., comparison between two relevant variables, and facilitate the policy makers in their external debt management exercise. The sustainability of external debt is measured using five groups of indicators, namely, liquidity monitoring indicators, debt burden indicators, debt structure indicators, Net Present Value (NPV) indicators, and dynamic indicators. The external debt indicators discussed in this review are mainly based on the proportion of receipts in exports of goods and non-factor services including workers remittances and compensation of employees (XGS) that is absorbed for servicing of external debt.

Operational Risk

Operational risk is endogenous to an institution, which means that it cannot be captured and measured as easily as rollover, interest rate, exchange rate or liquidity risk. Therefore, the operational risk management processes are complicated. It is linked to the nature and the complexity of the activities, to the processes and the systems in place, to the level of expertise of people involved and to the quality of the management and of the information flows. Operational risk associated with public debt portfolio include the risk of loss, whether direct or indirect, arising from a range of different types of risks, including transaction errors, in various stages of executing and recording transactions, inadequacies or failures in internal controls, processes, people or systems, reputation risk, legal risk, security breaches, or natural disasters that affect business continuity. The operational risk associated with the public debt portfolio continued to be minimized through several measures. These measures included various stringent internal control measures implemented in line with international best practices and risk management principles. Internal controls are put in place with segregation of duties, dual access control for auction systems, etc. Settlement risk associated with the government debt portfolio is minimized through the fully automated Scripless Securities Settlement System (SSSS) and Real Time Gross Settlement System (RTGS) to facilitate Delivery Versus Payment (DVP), protecting both parties to a transaction. Continuation of comprehensive Business Continuity Plan (BCP) is in place with a fully-fledged Disaster Recovery Site (DRS), to support crucial public debt management activities in case of a contingency situation. BCP and DRS that are made mandatory for every direct dealer in government securities are periodically tested.

Liquidity Monitoring Indictors


Liquidity Monitoring Indicators refer to the capacity of a country to settle its due external liabilities. These include; Interest Service Ratio, Medium and Long-term Debt Service Ratio, Total Debt Service Ratio and Short-term Debt Ratio. The Interest Service Ratio (INT/XGS) measures the cost of external debt as a percentage of XGS, where INT represents interest payments relating to external debt. The value of the ratio increased slightly to 3.51 per cent in 2012 from 3.30 per cent in 2011. The Medium to Long-term Debt Service Ratio (MLDS/XGS) and the Total Debt Service Ratio (TDS/XGS) also increased to 11.02 per cent and 11.26 per cent respectively

40

Public Debt Management in Sri Lanka

TABLE 24 EXTERNAL DEBT SUSTAINABILITY INDICATORS (AS AT END OF YEAR) (a) Per cent Description Liquidity Monitoring Indicators (c) Interest Service Ratio Medium & Long-term Debt Service Ratio (MLDS/XGS) Total Debt Service Ratio (TDS/XGS) Short-term Debt Ratio (Short-term Debt/XGS) Debt Burden Indicators DOD/GNP DOD/XGS Debt Structure Indicators Short-term Debt / Total DOD Rollover Ratio (Principal Payments/ Disbursements) (c) 23.85 2.83 30.61 3.01 40.03 2.90 36.61 117.76 35.99 112.11 37.23 111.00 3.23 7.54 7.77 2.35 3.30 7.83 8.05 2.76 3.51 11.02 11.26 2.81 2010 2011 2012 (b)

NPV Indicators (d)

NPV of Debt Service/GNP NPV of Debt Service/XGS Dynamic Indicators


(c)

36.91 118.68 8.06 24.11

40.37 130.02 10.28 28.63

40.41 124.86 68.18 50.08

Avg. rate of Interest/rate of growth of export Avg. rate of Interest/rate of growth of GNP

Source: Central Bank of Sri Lanka (a) Based on central government debt (b) Provisional (c) Including T-bills & T- bond payments to non-residents (d) NPV calculation is based on UN-ESCAP definitions and methodology Note: DOD represents total disbursed external debt outstanding GNP : gross national product XGS : exports of goods and non factor services including workers remittances and compensation of employees, TDS : total external debt service payments INT : external interest payments MLDS : external medium and long-term debt service payments and, NPV represents the present value of the stream of future debt payments on foreign debt, discounted at CIRR.

in 2012 from 7.83 per cent and 8.05 per cent respectively, in 2011. This was mainly due to the increase in external capital and interest payments to Rs. 284.4 billion in 2012 from Rs. 167.4 billion in 2011. Short-term debt ratio (Short-term debt/ XGS) increased marginally to 2.81 per cent at end 2012 from 2.76 per cent at end 2011 due to increase in foreign investments in T-bills and T-bonds.

economy. For this purpose, the first ratio that was used is by comparing Disbursed Outstanding External Debt (DOD) with XGS. This ratio measures the foreign debt level as a proportion of exports of goods and services. It shows the debt burden level over exports or the capability of acquiring foreign exchange. The second indicator is the ratio of DOD/GNP. The ratio of DOD/GNP marginally weakened to 37.23 per cent as at the end of 2012 compared to 35.99 per cent at the end of 2011. However, DOD/ XGS ratio improved to 111 per cent at the end 2012 compared to 112.11 per cent at the end of 2011.

Debt Burden Indicators


Debt burden indicators measure the level of the burden of external debt on the countrys
Public Debt Management in Sri Lanka

41

Debt Structure Indicators


External debt portfolio has a great impact on the risk exposure level of a country and such risk exposure is measured by rollover ratio which indicates the principal payments to disbursements. This ratio reflects the ability of a country to meet its debt service obligations via external disbursements. The rollover ratio increased significantly to 40.03 per cent in 2012 compared to 30.61 per cent in 2011, due to a higher increase in repayments in external debt than the increase in disbursements. A second indicator, short-term debt to total DOD ratio increased to 2.90 per cent at end 2012 from 2.12 per cent at end 2011 due to the increase in the T-bills and T-bonds holdings by foreigners.

Dynamic Indicators
Debt dynamic indicators compare growth in cost of borrowing with the increase in exports earnings and also with the growth in the overall economy. The ratio of average interest rate of the debt portfolio to the rate of export growth recorded 68.18 per cent in 2012 compared to the 10.28 per cent recorded in 2011. The ratio of average interest rate to the rate of GNP growth has increased to 50.08 per cent in 2012 compared to 28.63 percent in 2011. The increase in each of these indicators reflects mainly the relatively lowered rate of growth in exports earnings during 2012 compared to 2011.

Net Present Value Indicators

Overall Sustainability of Debt


Overall debt sustainability can be broadly assessed using two aggregate indicators, namely, overall debt to Gross Domestic Product (GDP) ratio and foreign debt service payments as a ratio of official reserves. The total debt to GDP ratio increased to 79.14 per cent at end 2012 from 78.44 per cent at end 2011. The ratio of external debt service payments to official reserves too, increased to 36.50 per cent in 2012, compared to 21 per cent in 2011. These two figures reflect an increased debt level at the end of 2012. Nevertheless, by comparing the debt sustainability indicators with their critical values as given in the Table 26, Sri Lanka is considered as a country in the class of less indebted countries. Further, Sri Lanka has been able to successfully face spillover effects of several global and regional economic drawbacks without having much variance on its debt portfolio and the debt management indicators, owing to prudent management of the public debt.

There are two commonly used NPV indicators. The first is the ratio of NPV of debt service to Gross National Product (GNP). The objective of using this ratio is to compare future debt service payments in present value terms, with general level of current economic activity. Second ratio is the ratio of NPV of debt service to XGS and this implies the capacity of a country to generate foreign exchange receipts. The ratio of NPV of Debt Service/GNP did not show significant change. This ratio stood at 40.41 at end of 2012 compared to 40.37 at end 2011. However, the NPV of Debt Service /XGS ratio, showed a significant degree of positive impact during the period under review, recording 124.86 per cent at end 2012, a reduction of 5.16 per cent, from 130.02 per cent at end 2011. This was mainly due to the decrease in NPV of Debt Service in 2012 compared to previous year.
TABLE 25 OVERALL DEBT SUSTAINABILITY Indicator Debt/GDP Share of foreign debt service payments /Official reserves (b) (a) Provisional (b) Official reserves at end of the previous year

Per cent 2010 81.9 21.8 2011 78.4 21.0 2012(a) 79.1 36.5 Source: Central Bank of Sri Lanka

42

Public Debt Management in Sri Lanka

TABLE 26 Critical values of external debt indicators Per cent Indicator Disbursed External Debt Outstanding/Gross National Income Disbursed External Debt Outstanding/Exports of Goods and Non Factor Services Total External Debt Service Payments/Exports of Goods and Non Factor Services External Interest Payments/Exports of Goods and Non Factor Services Net Present Value/Gross National Income Net Present Value/Exports of Goods and Non Factor Services Less Indebted <30% Moderately Indebted >30% and < 50% Highly Indebted >50% Sri Lanka 2012(a) 37.20%

<165%

>165% and <275%

>275%

111.06%

<18%

>18% and <30%

>30%

11.40%

<12%

>12% and <20%

>20%

3.60%

<48%

>48% and <80%

>80%

40.40%

<132%

>132% and <220%

>220%

124.90%

(a) Provisional

Source: Manual on Effective Debt Management, UN-ESCAP, 2006 Central Bank of Sri Lanka

Public Debt Management in Sri Lanka

43

Box 4 - Reducing Public Debt Burden without Hindering the Development Process
On the eve of reaping dividends of peace in the aftermath of a 3 decades long civil conflict, Sri Lanka is steadily marching for a higher growth trajectory. With traditionally low participation in most of mega development initiatives by the non-public sector and with fiscal revenue being insufficient to fund for such investments, the Government of Sri Lanka (GOSL) has largely been resorting to raising debt for funding those investments both locally and externally. In the past, Sri Lanka, as a low income country had access to low interest foreign debt for investment initiatives. However with the graduation of the country to a lower middle income category, it is no longer entitled for loans on concessionary terms from bilateral and multilateral sources and the foreign borrowing at commercial rates is in the increase. Such borrowings may carry the risk of increasingly elevating the countrys foreign debt service obligations with high exposure to foreign exchange risks, while adding to the burden on the government budget. In this context looking for alternative means of project financing is vital to maintain the growth momentum needed for achieving development objectives of medium to long terms without having to alter the foreign debt profile of the government. A viable option that is being entertained by most countries recently is the Public-Private Partnerships (PPPs). It is as an effective mechanism of designing, financing, constructing and operating large infrastructure development projects, harnessing the resources and expertise of both private and public entities. The term PPP refers to a contractual agreement between a public sector and a private sector entity, through which the skills and assets of each sector are shared in delivering a service or facility for the use of the general public(1). As per the World Bank, PPP is a long-term contract between a private party and a government agency, for providing a public asset or service, in which the private party bears significant risk and management responsibility. PPP does not mean privatization, which is commonly used to refer outright sale of public facility or service to the private sector. Ideally, PPPs are aimed to combine the expertise, capacity and experience of both the public sector and private sector in achieving opimal outcomes for public needs, while allocating risks, resources and returns between parties appropriately in a mutually agreed manner. In a PPP, there is greater participation of private sector in design, financing, construction, operation and management of public utilities or services while government involvement is mainly limited to guiding, facilitating and regulating. At the same time, government service delivery objectives are aligned with private partners profit objectives. There are several value drivers behind the use of PPPs by the governments worldwide as off-budget mechanism for infrastructure development which increase value for money spent for the provision of more efficient, lower cost and reliable public service. Some of them are improved service quality, reduced life cycle costs, sharing risks with the private sector, quicker delivery, increased financing certainty, technology transfer and enhanced public management. However, PPPs are not a panacea. Hold-up problems could arise with long term and often complex PPP contracts due to difficulty in disclosing information on effects and risks associated with them. These problems can be overcome by offering renegotiations, higher compensations by the public entity and asking for surety bonds. If the projects are not properly structured it will make more damages to governments than projects implemented using traditional public procurement methods.

44

Public Debt Management in Sri Lanka

PPPs can be of many forms, depending on the degree of involvement and risk shared by the private entity and the duration of the contract. The most suitable model could be selected considering financial and technical features of the project with the prevailing economic, political, legal and social conditions of the country. Among the PPP models, Supply and management contracts are the simplest model with least risk taken by the private investor, which involves in functions like design, labour management, procurement and operational activities for a fee paid by the government during a short period of time of 2-3 years. Turnkey or DesignBuild contracts are with less innovation and investment by the private sector which only involves in designing and construction of the facility and taking risks for that for a short period of time. Lease or Affermage contracts, are where government takes the investment risk while operational risk is borne by the private investor who involves in the operation and maintenance of the infrastructure facility. The revenue collected from customers is either retained by the operator (in Lease) or shared with the government (in Affermage). Concessions are agreements that private investor constructs and operates infrastructure facilities for a longer period of time ranging for 5-50 years. There is high level of private investment, innovation, technology and skills while a significant level of risk is taken by the private investor. Some types of concessions are Build-Operate-Transfer (BOT), Build-Rehabilitate-Operate-Transfer (BROT) and Build-Lease-Transfer (BLT) in which the ownership of the infrastructure facility is transferred from the concessionaire to the government after the concessionaire builds and operates the facility for a fixed period of time. These PPPs require long period of time for the negotiations while close regulatory oversight and longer term contingent liabilities should be supplied by the government. The revenue is generated from managing and marketing the facility. Private Finance Initiatives (PFI) are agreements where government purchases the infrastructure facility through a long term agreement after the design, construction and operation are carried out by the private investor. This is most suitable for social infrastructure like hospitals, prisons, schools, etc and high level of investment, innovation and risk sharing is by the private investor. In Sri Lanka, potential Public - Private Partnerships exist in areas of upgrading roads, ports, airports, power generation, water supply, telecommunication, hotels, healthcare and prisons, etc. Construction of star class hotels and domestic or international airports where the government can provide land or property, construction of modern highways for which passengers pay toll and port with enhanced ports services and terminals comprising of improved handling capacities and accommodating modern container mega ships, introduction of Mass Rapid Transit (MRT) systems in congested city areas, provision of cargo and passenger transport from ports and airports to city limits and electricity generation using alternative energy sources are among the priorities for investment. Public services like healthcare, prisons and higher education can also be provided as PPPs with enhanced service delivery. Sri Lanka has very successful stories on PPPs in the ports sector. The Queen Elizabeth Quay (QEQ) of Colombo harbour was transferred to a private consortium on a Build Own Operate and Transfer (BOOT) concession. The terminal will be handed over to the government after 30 years of operation by the concessionaire. Started in 2011 was another PPP project involving construction of

Public Debt Management in Sri Lanka

45

three terminals in the Colombo South Harbor on Built, Own, and Transfer (BOT) agreement financed by China Merchants Holdings (International) Co. Ltd. (CMHI), Aitken Spence PLC and Sri Lanka Ports Authority (SLPA), and the terminals will be transferred to Sri Lanka Ports Authority SLPA after 35 years. Around the world raising funds for development projects through public-private partnerships without excessively burdening governments are time tested. At present with the emergence of Sri Lanka as an investment jurisdiction with promising prospects, greater potential is available for long outstanding mega projects especially in the infrastructure sector to be commenced under such partnership that would help in realizing the countrys development targets.

(1) Adapted from the definition of PPP provided by the National Council for PPPs, in Arlington, USA (see the Councils PPP definition at http://www.ncppp.org/howpart/index.shtml).

46

Public Debt Management in Sri Lanka

7. Performance of Primary Dealers


Introduction
Primary Dealers (PDs) are specialized intermediaries in the government securities market, appointed by the Central Bank of Sri Lanka (CBSL) under the Local Treasury Bills Ordinance (LTBO), No 8 of 1923 and the Registered Stock and Securities Ordinance (RSSO) No. 7 of 1937. The key contribution expected from the PD system is to strengthen the government securities market by, (a) helping to build stable, dependable source of demand for securities by effectively participating in the primary auctions conducted by CBSL, (b) providing liquidity in the secondary market, (c) building distribution channels (to act as intermediaries) and, (d) providing market information, including prices, volumes and spreads between bids and offers. At end 2012, there were 12
Table 27 SELECTED KEY FINANCIAL INDICATORS OF PD INDUSTRY Performance Indicator Total Assets (Rs. Bn.) Total Gov. Security Portfolio (Rs. Bn.) Repo (Rs. Bn.) Capital Base (Rs. Bn.) Risk Weighted Capital Adequacy Ratio (%) Repo/Assets Ratio at end Period (%) Leverage (times) Net Interest Margin (%) Trading Gains Ratio (%) ROA (%) ROE (%) One year T-bill yield (year-end) (a) Revised (b) Provisional 2010 127.2 125.0 75.3 13.5 22.56 59.17 5.57 1.96 2.97 3.86 33.99 7.55 2011 (a) 132.7 130.8 85.3 14.4 23.31 64.24 5.92 1.59 (0.52) 1.14 7.75 9.31 2012 (b) 160.4 157.7 103.6 16.0 17.95 64.61 6.49 0.76 0.89 1.95 15.97 11.69 (%) Change in 2011(a) 4.32 4.64 13.28 6.67 0.75 5.07 0.35 (0.37) (3.49) (2.72) (26.24) 1.76 2012(b) 20.87 20.57 21.45 11.11 (5.36) 0.37 0.57 (0.83) 1.41 0.81 8.22 2.38

PDs consisting of 5 PD units attached to Licensed Commercial Banks (LCBs) (Bank PD units), 2 PD companies owned by Licensed Banks (Bank PD companies) and 5 Non-Bank PD companies (Standalone PDs). PDs continued to be the key players in the government securities market in 2012.

Financial Performance
PD industry recorded improvements in its Key Performance Indicators (KPIs) at end 2012 in spite of the negative implications of increasing yield rates during the first three quarters of the year. Total assets, total investment portfolio, profitability and capital base recorded healthy growth during 2012 in comparison to the deceleration experienced in 2011. A summary of KPIs for the period from 2010 to 2012 is given in Table below.

Source: Central Bank of Sri Lanka

Public Debt Management in Sri Lanka

47

Positive growth in total assets: Total assets of the industry recorded a significant increase of 20.87 per cent during the year and amounted to Rs. 160.4 billion at end 2012, compared to 4.32 per cent increase in 2011. The portfolio of government securities in trading, investments and reverse repo accounted for 98.30 per cent of the total assets of the industry. The sharp increase in the investment portfolio during the fourth quarter following the decline in yield rates of Treasury bills (T-bills) and Treasury bonds (T-bonds) was the main reason for the above increase in total assets of the industry. Government securities held by the PD industry in its investment portfolio recorded an increase of 122 per cent to Rs. 50.9 billion at end 2012 from Rs. 22.9 billion at end 2011. Significant increase in repo borrowings: As a result of high reliance on borrowed funds in financing the increase in total assets portfolio of the industry, total borrowing of the industry under repo agreements increased by 21.45 per cent to Rs. 103.6 billion at end 2012 from Rs. 85.3 billion at end 2011. The absence of an adequate inflow of funds in the form of new capital or retained earnings to the industry contributed to the above heavy reliance of the industry on borrowing. Improved capital base: Total capital funds of the PD industry increased by 11.11 per cent to Rs. 16 billion at end 2012 compared to Rs. 14.4 billion at end 2011. The Risk Weighted Capital Adequacy Ratio (RWCAR) of the industry decreased to 17.95 per cent as at end 2012 from 23.31 per cent at end 2011. This was mainly due to the increase in total asset base of the industry. However, all PDs were able to maintain the minimum regulatory capital requirement of Rs. 300 million and RWCAR of 8 per cent at end 2012. The increased borrowing position of the industry was reflected in capital leverage ratio, the ratio of borrowed funds to the PDs own funds, of 6.49 times at end 2012 compared to 5.92 times at end 2011.

Improved profitability: Profitability of the PD industry measured in terms of the Return on Assets (ROA) and Return on Equity (ROE) increased from 1.14 per cent and 7.75 per cent respectively, in 2011 to 1.95 per cent and 15.97 per cent respectively, in 2012. Total industry profits before tax increased by 67.11 per cent to Rs. 2,527.9 million in 2012 from Rs. 1,512.7 million in 2011. Net interest income, realized capital gains through sale of government securities and unrealized marked-to-market profits on trading portfolios resulting from declined yield rates towards latter part of 2012 positively contributed to the improved profitability.

Risk Management
Market risk: Market risk exposure of the individual PDs as well as the industry as a whole decreased at end 2012 partly due to the decline in trading portfolio and partly due to the decline in market yield rates. The trading portfolio of the total government securities portfolio of the PD industry stood at Rs. 83.4 billion or 52.89 per cent at end 2012 compared to 67.75 per cent at end 2011. Further, as a result of decrease in market yield rates, PD industry recorded a marked-to-market gain of Rs. 452.1 million at end 2012. At end 2011, the industry recorded a marked-to-market loss of Rs..853.1 million. The stress tests conducted at end 2012 to measure the impact of a percentage change in interest rate on the value of the trading portfolio and the ability to maintain capital adequacy to absorb the decline in the value of trading portfolio due to increase in market yields indicated that the industry as well as individual PDs would be able to maintain the minimum regulatory capital requirement of Rs. 300 million and RWCAR of 8 per cent, even if interest rate moves up by 100 bps from its level at end 2012. Liquidity risk: The overall liquidity risk exposure of the PD industry, as measured in terms of the mismatch in
Public Debt Management in Sri Lanka

48

overnight maturity profile of assets and liabilities, improved during 2012. The overnight negative mismatch in the maturity profile of assets and liabilities of the industry stood at Rs. 11.2 billion at end 2012, compared to Rs. 14.2 billion at end 2011. In view of the large proportion of risk free government securities holdings of PDs and also the ability of PDs to use such government securities as collateral for obtaining funds to bridge unforeseen liquidity gaps, the liquidity risk profile of PDs remained low throughout the year. Further, most PDs had stand-by funding arrangements through banks to bridge liquidity gaps, if emerged.

initiatives to develop the government securities market to its current levels in terms of issuance process, instruments, investor base and trading and settlement infrastructure. CBSL with a view of continuing its effort towards the development of domestic debt market took the following measures in 2012. Put in place an E-trading platform for government securities: An Electronic Trading (E-trading) platform was introduced with a view of employing state of the art technology to facilitate trading in government securities electronically, by bringing buyers and sellers on to one platform. The new trading platform is expected to eliminate information asymmetry while helping the price discovery. Availability of information pertaining to all secondary market transactions in government securities will enable the formulation of a dynamic benchmark yield curve, which would eventually enhance the efficiency of the market. The new trading platform is also expected to provide facilities for trade negotiation and matching and regulatory reporting, based on the secondary market trading which takes place in the platform. Implemented an online data reporting system for PDs: PD industry is expected to grow both in terms of number of PDs and volume of transactions along with the anticipated rapid growth path of the economy. These developments will have a significant impact on the risk profile of PDs, requiring continuous monitoring and surveillance by CBSL. This necessitated the introduction of an online data reporting system to facilitate offsite surveillance of PDs more efficiently. The new system (FInNet), is expected to enhance the efficiency and effectiveness of off-site surveillance of PDs by minimizing delays, inaccuracies and duplication of work by automating generation of analytical reports on performance of individual PDs.

Participation in Primary and Secondary Markets


Primary Market Participation: Bank PD units continued to dominate T-bill auctions held during 2012 by recording the highest effective participation level of 64.11 per cent, compared to 74.22 per cent participation level recorded in 2011. The effective participation of Bank PD companies in T-bill primary auctions increased to 23.03 per cent in 2012 from 20.21 per cent in 2011. T-bond auctions were mainly subscribed by captive sources, particularly, Employees Provident Fund (EPF) recording 78.50 per cent of the total subscriptions during 2012. Secondary Market Participation: Total secondary market transaction volume of the PD industry increased by 9 per cent to Rs. 7,830.5 billion in 2012 from Rs. 7,184 billion in 2011, due mainly to the increase in repo transactions. Correspondingly, the repo transactions in government securities also increased by 5.59 per cent to Rs. 6,246.4 billion in 2012 from Rs. 5,915.7 billion in 2011. The ratio of repo transactions to total secondary market transactions in 2012 recorded at 79.77 per cent compared to 82.35 per cent in 2011.

New Developments:
Over the years, CBSL has taken several
Public Debt Management in Sri Lanka

49

Box 5 - Improving the Efficiency and Effectiveness of Primary Dealer System


The Primary Dealer (PD) system of Sri Lanka has evolved over 20 years undergoing several improvements in terms of issuance processes, instruments, investor base, and trading and settlement infrastructure to its current level. The PD System was first introduced in 1992 as an Accredited Primary Dealer (APD) System. As APD system was not restricted to government securities transactions and there found to be a conflict of interest, the Dedicated Primary Dealers (DPDs) in government securities were appointed in 2000, with a view to infuse greater competition, liquidity and depth into the government securities market. By the introduction of the DPDs, the borrowing cost of the government was expected to be reduced, through effective participation of PDs in both primary and secondary markets. In 2002, Licensed Commercial Banks (LCBs) were allowed to become PDs with a view to increase the intermediation abilities of the system and to infuse more competition and liquidity into the government securities market. However, PD System is still burdened with certain systemic limitations. (a) Asymmetry in market information due to non-availability of a dynamic benchmark yield curve A significant proportion of the secondary market transactions in government securities take place in the Over-the-Counter (OTC) market. The underlying prices and yields of these transactions are not reflected in the current yield curve, thereby creating an asymmetry in market information. This leads to low volume of transactions and low level of market liquidity in the secondary market. (b) Lack of secondary market liquidity in terms of rupee leg and the security leg As per the current settlement system, delivery versus payment-1 (DVP-I), each secondary market transaction in government securities is required to be settled on one-to-one gross basis where market participants are expected to maintain substantial amounts of liquidity in both security and money terms. As a result, the secondary market transaction volume in government securities has stagnated at a considerably low level for several years. (c) Limited participation at primary and secondary market activities DPDs are expected to act as the intermediaries and market makers for government securities. However, due to the shallow and illiquid secondary market for government securities, PDs tend to buy and hold securities rather than exploring yield enhancement through secondary market trading thereby distorting the price discovery mechanism. In a rising interest rate regime, PDs tend to incur large marked-to-market losses leading them to refrain from actively trading in government securities. The illiquid nature of the market has created a substantial spread between the buying and selling prices of government securities by making such instruments comparatively less attractive for secondary market investors, including retail investors. Apart from the above systemic limitations, PDs have experienced certain inherent operational inefficiencies as well such as:

50

Public Debt Management in Sri Lanka

(a) Lack of an institutional arrangement for the management of risks Certain standalone PDs continue to operate with lack of board approved policies, procedures and a clear institutional arrangement for the management of risks inherent to the activities that they have been engaged with. (b) Inherent liquidity risk Standalone PDs are faced with an inherent liquidity risk due to the large overnight maturity mismatch they carry in the assets and liability maturity profile. Their activities are funded mainly through shortterm repo borrowings from the market. Also, some PDs do not have satisfactory stand-by liquidity arrangement/s to bridge unforeseen liquidity shortfalls in time to come. (c) Non-availability of a Business Plan Most PDs do not have a business plan clearly articulating its strategies on business expansion, enhancement of market share and strategies to improve the PD operations in the medium-term. Suggestions for improving the efficiency and effectiveness of Primary Dealer System In order to address the above issues, the present PD system requires certain improvements that will facilitate PDs to operate efficiently in volatile market conditions and to energize the government securities markets, which will ultimately help to reduce the cost of borrowing to the government. Efficiency and effectiveness of PDs can be improved by the following strategies:

(a) Implementation of an E-trading and reporting platform for Government securities An Electronic Trading (E-trading) platform for Government securities together with mandatory reporting of all secondary market transactions, including those contracted through OTC market would help eliminating the current information asymmetry while helping the price discovery in the secondary market yields. Also, the dynamic yield curve based on trades executed on the platform for government securities, can be used as a benchmark yield curve for trading government securities, thus promoting volume of transactions and liquidity in the secondary market for government securities. (b) Central Clearing Arrangement A central clearing arrangement on net settlement of rupee leg and security leg (DVP III) would help to enhance the efficiency in intra-day liquidity management of participants and thereby increase the secondary market trading volumes substantially. (c) Liquidity Support In order to overcome the liquidity constraints faced by PDs due to lack of secondary market demand for government securities, a mechanism of liquidity support for standalone PDs can enhance the liquidity position in the government securities market and activate secondary market transactions. In developed government securities markets, standalone PDs are provided with liquidity support, based on their performance in the primary and secondary markets.

Public Debt Management in Sri Lanka

51

(d) Diversification Diversification of PD activities by permitting PDs to act as corporate debt dealers, will facilitate PDs to reduce the vulnerability to market risk in a rising interest rate scenario as PDs have the flexibility to diversify their activities in line with the changes in the market, instead of operating in a single product market. Also, the appointment of PDs as corporate debt dealers would improve the activities in the domestic debt market and lower the borrowing cost of the government through greater competition. (e) Customer Charter For the purpose of safeguarding the interests of both PDs and customers and to strengthen their relationships, it is required to introduce a customer charter that includes certain rights, obligations, ethical standards and norms which will be applicable to PDs and their customers. (f) Fitness and Propriety Assessment In view of the need for development of the government securities market, PD system and customer protection, it is also necessary to put a system in place to assess the fitness and propriety (honesty, integrity and reputation, competence and capability, and financial soundness) of directors and officers performing executive functions of PD institutions. This will protect the interests of investors in government securities. (g) Short Selling As a measure of enhancing the secondary market liquidity, it is suggested to allow PDs to undertake short selling which would facilitate PDs to sell government securities without actually holding the relevant securities in their portfolio. This will also enable firm two-way quotes for benchmark government securities. Above improvements would provide significant contributions towards expanding and strengthening the PD system and ensuring an improved and efficient primary and secondary market for government securities.

52

Public Debt Management in Sri Lanka

Special Appendix
1923 - Enactment of the Local Treasury Bills Ordinance (LTBO) enabling the Government to borrow through the issue of Treasury bills (T-bills) 1937 - Enactment of the Registered Stock and Securities Ordinance (RSSO) enabling the Government to borrow through the issue of medium and long term government securities 1941 - Commencement of T-bill issues under parliamentary approval 1949 - Enactment of the Monetary Law Act (MLA) entrusting the Central Bank of Ceylon to act as the agent of the government in managing public debt 1957 - Enactment of the Foreign Loans Act - Enactment of the Tax Reserve Certificates Act 1981 - Commencement of the issuance of six months (182 days) T-bills. Prior to 1981, only three months (91 days) T-bills were issued. - Introduction of secondary market operations for T-bills 1982 - Enactment of the Loans (Special Provisions) Act 1986 - Commencement of weekly issues of T-bills. Fortnightly issues of T-bills on the 1st and the 15th of each month had taken place before 1986. 1989 - Introduction of Tap system through the regional offices of the Central Bank of Sri Lanka (CBSL). - Issuance of T-bills with multiple maturities of 91-days, 182-days and 364-days - Introduction of the Treasury Certificates of Deposit Act - Tap system extended through authorized agents

1. Major Developments in the Government Securities Market in Sri Lanka

1992 - Introduction of accredited Primary Dealer (PD) system. Eleven PDs consisting of eight Licensed Commercial Banks (LCBs) and three non bank dealers were appointed 1993 - Introduction of repurchase agreements on T-bills 1994 - Reforming the PD system. Eighteen PDs consisting of thirteen LCBs and five non-bank dealers were appointed. 1995 - Phasing out of non- competitive bidding by public sector institutional investors - Introduction of reverse repurchase transactions on T-bills - Fixing and prior announcement of T-bills to be issued under each maturity

- Amendment of LTBO and RSSO to facilitate the issue of scripless T-bills and T-bonds and maintenance of the Central Depository System (CDS)
Public Debt Management in Sri Lanka

53

1997 - Commencement of the issuance of Treasury bonds (T-bonds) - Formation of the Association of Primary Dealers in June 1997 1998 - Introduction of an electronic bidding facility 2000 - Introduction of the dedicated PD system, where only the dedicated companies were appointed as PDs. 2001 - Issuance of Sri Lanka Development Bonds (SLDBs) 2002 2003 - Expansion of PD system to LCBs - Enactment of the Fiscal Management (Responsibility) Act - Introduction of a Code of Conduct for PDs

- CBSL moved from a system of passive Open Market Operations to an active OMO system in order to enhance the effectiveness and market orientation of monetary policy operations. - Introduction of a screen based trading platform for government bonds. 2004 Conversion of T-bills and T-bonds issued in scrip form into scripless form to the Regulations issued under LTBO and RSSO in 2004. (DVP) basis) and the CDS for government securities - Issue of government securities in scripless form 2005 - Issuance of first index-linked T-bonds pursuant

- Introduction of Scripless Securities Settlement System (SSSS) (on Delivery Versus Payment

- Issue of the first sovereign credit rating of Sri Lanka by Standard and Poors (S&P) and Fitch Ratings (Fitch). - Opening up the T-bond market to foreign investors with an aggregate ceiling of 5 per cent of the outstanding bonds. 2007 - Issue of Sri Lanka Nation Building Bonds (SLNBB) - Suspension of the participation of PDs in the CBSLs OMOs - Opening of retail outlets to sell government securities - Lifting the suspension of PDs participation in the CBSLs OMOs 2006 - Introduction of the Risk Weighted Capital Adequacy framework for PDs

- Issuance of the first International Sovereign Bond (ISB) of USD 500 million in the international capital market 2008 - Authorizing LCBs to invest in Lanka (GOSL), in the secondary market the ISB issued by the Government of Sri

- Enhancement of the aggregate ceiling of 5 per cent to 10 per cent in respect of investment in T-bonds by foreign investors.

- Introduction of the PC based payment and securities settlement system as part of the Business Continuity Plan (BCP) of the LankaSettle System. - Opening up of the T-bill and T-bond market to the Sri Lankan Diaspora and Migrant workforce 2009 - Issuance of the second ISB of USD 500 million.

- Opening up of the T-bill market to foreign investors with the aggregate ceiling of 10 per cent of the outstanding bills.

54

Public Debt Management in Sri Lanka

- Providing concessions in obtaining Dual Citizenship status by ex-Sri Lankans (holding foreign citizenship) who invest in Sri Lanka government T-bonds subject to certain conditions. - Extending the yield curve on government securities up to 10 years - Increasing the maximum number of days accepted by the LankaSecure system for future value dated transactions from 31 calendar days to 364 calendar days - Upgrading of the sovereign credit rating outlook by S&P and Fitch - Setting up of the Domestic Debt Management Committee (DDMC) by the Monetary Board on 05 November 2009. 2010 - Introduction of participant managed Intraday Liquidity Facility to the LankaSettle and LankaSecure Systems - Introduction of an Analytical Tool to develop a Medium-term Public Debt Management Strategy - Conducting a workshop for the dealers and treasury officials of PDs on the development of domestic and international economy - Issuance of the third ISB of USD 1,000 million with 10 year maturity. - Issue of first sovereign credit rating of Sri Lanka by Moodys Investors Service (Moodys) and upgrading of the sovereign credit rating of Sri Lanka by Fitch and S&P. 2011 - Issuance of the fourth ISB of USD 1,000 million with 10 year maturity. - Upgrading the sovereign credit ratings of Sri Lanka by Fitch, S&P and Moodys.

- Appointment of three new participants to LankaSecure including one PD and two LCBs namely, WealthTrust Securities Limited, Amana Bank Limited and Axis Bank Limited. - Limit on foreign investments in government securities was increased from 10 per cent to 12.5 per cent of the total outstanding stock of T-Bills and T-Bonds. 2012 - Issuance of the fifth ISB of USD 1,000 million with 10 year maturity. - Upgrading of LankaSettle and LankaSecure (new version 3.6) with many new features to make the day-to-day business operations more efficient and effective. - Standardization of investor information registration in the CDS in LankaSecure.

- Implementation of an Electronic Trading (E-Treading) platform to promote the secondary market for Government securities. - Issuance of 20 year T-Bonds. - Fitch affirmed Sri Lankas Foreign- and Local-Currency Issuer Default Rating (IDRs) at BB with a Stable outlook in May 2012. - Moodys affirmed Sri Lankas rating of B1 with a Positive outlook in November 2012. - S&Ps affirmed Sri Lankas rating of B+ with Stable outlook in December 2012.

Public Debt Management in Sri Lanka

55

56

Public Debt Management in Sri Lanka

Glossary
Average Time to Maturity - Weighted average time to maturity of all the debt securities/loans in the debt portfolio. Benchmark Bond - A bond that provides a standard against which the performance of other bonds can be measured. Government bonds are often used as benchmark bonds. This is also referred to as benchmark issue. Bunching of Debt Stock - An excessive amount of debt maturing on a given date or within a given period of time. Central Counterparty (CCP) A central counterparty interposes itself between counterparties to contracts traded in one or more financial markets, becoming the buyer to every seller and the seller to every buyer and thereby ensuring the performance of open contracts. A CCP becomes counterparty to trades with market participants through novation, an open-offer system, or through an analogous legally binding arrangement. CCPs have the potential to reduce significantly risks to participants through the multilateral netting of trades and by imposing more-effective risk controls on all participants and, as a result, they can reduce systemic risk in the markets they serve. Central Depository - A computerized central system which records primary issuance of scripless securities and their trades taking place in the secondary market. Coupon - The interest payment made to bond holders during the lifetime of the bond. Coupon payments are usually paid semi-annually. The annual amount of interest is equal to the principal value times the coupon rate. Debt Sustainability - The level of debt which allows a debtor country to meet its current and future debt service obligations in full, without recourse to further debt relief or rescheduling, avoiding accumulation of arrears, while allowing an acceptable level of economic growth. Duration - The weighted average maturity of the cash flows of a debt security/portfolio. DVP III - Simultaneous Net Settlement of Securities and Funds Transfers. These systems settle transfer instructions for both securities and funds on a net basis, with final transfer of both occurring at the end of the processing cycle. Settlement may occur once a day or several times a day. Floating Rate Bond A bond that has a variable coupon equal to a money market reference rate, like LIBOR plus a spread. The spread is a value that remains constant. FinNet Financial Information Network (FinNet) is a common interface to submit financial information by banks, finance companies, leasing companies and primary dealers . Grace Period - Period of time provided for in a loan agreement for commencement of repayment of the loan. Grant Element A measure of concessionality of a loan, calculated as the difference between the face value of the loan and the sum of discounted future debt service payments to be made by the

Public Debt Management in Sri Lanka

57

borrower expressed as a percentage of the face value of the loan. Index Linked Bond A bond, which pays a coupon, that varies according to some underlying Index usually the Consumer Price Index. Intra-day liquidity Funds, which can be accessed during a business day and settled on the same day, usually to enable financial institutions to make payments on real time. LIBOR - The London Inter Bank Offered Rate. This rate is used as a reference rate by the international banking markets and is commonly the basis on which lending/borrowing margins are fixed. Maturity - Refers to the date on which the issuer has promised to redeem the issue by paying the principal value. The number of days or years until the date of redemption is called the maturity period. Open Market Operations - The process of which the Central Bank buys or sells securities in the open market to control the volume of money (liquidity) or price of money (interest rates). Outright Transactions - Transactions by which ownership (title) of the securities are transferred permanently to the buyer. Parity Variance - Effect of the appreciation/ depreciation of foreign currencies against the local currency on the existing foreign currency debt portfolio stated in the local currency Primary Dealer - An intermediary appointed by the CBSL to deal in government securities. Primary Market - Market where securities are first issued to buyers. Repayment Period - The period during which the debt obligation is to be repaid. Repurchase Transaction A transaction involving a sale of securities with an agreement to reverse the transaction on a future date. Risk Weighted Capital Adequacy Ratio - The ratio computed by dividing available capital by the risk weighted assets.

Running Cost Ratio - The interest paid as a proportion of the outstanding debt stock at the beginning of the year. Rupee Loan - A medium to long-term debt instrument issued with maturities more than two years on tap basis or as private placements by the CBSL on behalf of the government under the Registered Stock and Securities Ordinance. Interest rates of this instrument are determined administratively. Scripless Securities - Treasury bills and Treasury bonds issued in book entry form or as paperless securities. Secondary Market - The market where securities are traded and exchanged among buyers and sellers after the securities are issued at the primary market. Special Drawing Rights - The unit of account of the IMF of which the value is based on a basket of key international currencies. Sovereign Bond A debt security issued by a sovereign government denominated in domestic or a foreign currency. The foreign currency most likely is a hard currency. Sovereign Credit Rating Sovereign Credit Rating is an assessment of the credit worthiness of a country or sovereign entity. At the request of the country, a credit rating agency will evaluate the countrys economic and political environment to determine representative credit ratings. Statutory Reserve Ratio Percentage of deposits, which the commercial banks should keep with the central bank, through which the central bank can influence their credit creating ability. Treasury Bill - A short-term debt instrument issued usually on a discount basis and for maturities of 91, 182, and 364 days by the CBSL on behalf of the government under the Local Treasury Bills Ordinance. Treasury Bond - A medium to long-term debt instrument issued by the CBSL on behalf of the government under the Registered Stock and Securities Ordinance.

58

Public Debt Management in Sri Lanka

Yield The coupon or discount when expressed as a percentage of the price. Yield Curve - A graphical depiction of the relationship between the yield on the securities and different maturities.

Zero Coupon Bond A bond that does not pay interest during the life of the bond. Instead, investors buy a zero coupon bond at a deep discount on the face value. The face value of the bond is paid at the maturity.

Public Debt Management in Sri Lanka

59

Statistical Appendix
Table 1: Government Debt Table 2: Outstanding Government Debt (as at end year) Table 3: Composition of Outstanding Government Debt as at end year Table 4: Ownership of Outstanding Government Debt as at end year Table 5: Details of Outstanding Treasury bonds as at end 2012 Table 6: Details of Outstanding Sri Lanka Development Bonds as at end 2012 Table 7: Details of Outstanding Rupee loans as at end 2012 Table 8: Changes in Relative Composition of Government Securities Table 9: Maturity Profile of Domestic Debt as at end 2012 Table 10: Future Domestic Currency Debt Obligations as at end 2012 Table 11: Ownership of Treasury bills Table 12: Ownership of Treasury bonds Table 13: Ownership of Rupee loans Table 14: Composition of Outstanding Foreign Debt as at end 2012 Table 15: Ownership of Outstanding Foreign Debt Table 16: Foreign Loans - 2012 Table 17: Foreign Loans Disbursements by Source Table 18: Government Debt Repayments and Interest Payments Table 19: Issues and Maturities of Domestic Debt in 2011 and 2012 Table 20: Auction and Primary Issue Details in 2011 and 2012 Table 21: Government Borrowing Limits and Usage in 2011 and 2012 Table 22: Financing of the Government Net Cash Deficit Table 23: Annualised Weighted Average Yield Rates of T-bills, T-bonds and Rupee loans Table 24: Treasury bond Auctions in 2012 Table 25: Treasury bill Auctions in 2012 Table 26: Secondary Market Transactions as Reported by Primary Dealers Table 27: Secondary Market Transactions Recorded in the LankaSecure

60

Public Debt Management in Sri Lanka

Definitions and Explanatory Notes The following general notes supplement the footnotes given below the individual tables: 1. In an attempt to bring the material up-to-date provisional figures are included in some tables. 2. Figures in some tables have been rounded off to the nearest final digit. Hence there may be slight discrepancy between the total as shown and the sum of its components. 3. Differences as compared with previously published figures are due to subsequent revisions. 4. Values indicated within parenthesis are negative values. 5. The following symbols have been used throughout: n.a. = not available - = nil = negligible

Public Debt Management in Sri Lanka

61

government Debt
Year(a) 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012(e)(f) Domestic Debt Treasury bills(b) 79 30 93 184 105 60 68 65 140 320 550 750 1,000 1,125 1,250 1,300 1,425 1,500 1,750 1,750 1,950 2,025 2,325 2,250 2,250 2,350 2,700 2,500 2,635 3,000 9,800 13,920 17,320 17,400 14,860 22,280 26,173 29,850 43,700 57,246 67,968 72,968 87,096 97,196 98,896 113,771 124,996 114,996 119,996 124,996 134,996 170,995 210,995 219,295 243,886 234,174 257,732 307,012 402,600 441,032 514,442 590,885 629,070 Rupee loans 436 582 684 731 782 829 882 962 1,007 1,102 1,217 1,397 1,515 1,684 1,909 2,150 2,475 2,785 3,118 3,409 3,925 4,512 5,103 5,812 6,591 7,560 9,001 10,391 12,049 14,929 17,611 20,025 25,800 31,953 33,228 36,570 39,130 44,957 49,797 54,217 54,677 66,823 69,180 105,707 137,554 157,928 205,975 239,475 250,570 262,056 263,888 292,813 287,701 248,414 164,758 140,563 116,713 131,509 130,009 112,292 87,709 61,961 58,386 Treasury bonds (c) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 10,000 48,915 104,867 204,124 229,174 347,128 483,107 643,349 751,569 885,972 1,018,852 1,281,978 1,513,512 1,643,887 1,819,251 2,095,054

Government Debt Other 14 14 75 129 66 - - 105 91 138 170 198 179 222 216 246 295 298 329 354 420 446 498 522 604 949 990 1,501 1,684 1,705 1,659 1,573 2,147 2,416 3,564 3,761 4,196 4,190 5,099 6,099 11,251 12,328 13,744 10,782 12,669 17,711 25,731 23,269 43,945 51,546 73,652 122,983 102,562 69,153 91,396 139,416 218,813 257,825 325,641 334,120 319,624 331,988 450,304 Total 529 626 852 1044 953 889 950 1,132 1,238 1,560 1,937 2,345 2,694 3,031 3,375 3,696 4,195 4,583 5,197 5,513 6,295 6,983 7,926 8,584 9,445 10,859 12,691 14,392 16,368 19,634 29,070 35,518 45,267 51,769 51,652 62,611 69,499 78,997 98,596 117,562 133,896 152,119 170,020 213,685 249,119 289,410 356,702 387,740 463,426 543,465 676,660 815,965 948,386 1,019,969 1,143,389 1,265,722 1,479,230 1,715,198 2,140,228 2,400,955 2,565,662 2,804,085 3,232,813 Total Foreign Debt Debt (b)(c) 125 125 192 205 211 232 258 278 293 307 345 407 412 489 549 739 1,074 1,376 1,578 1,800 2,394 2,795 2,936 3,705 2,859 3,705 4,968 10,593 14,583 15,840 22,276 29,172 35,267 46,688 53,681 67,673 86,208 111,812 125,657 156,298 176,883 214,579 235,539 270,224 301,812 346,286 359,685 376,331 461,273 507,866 542,040 636,741 721,956 843,882 996,138 956,621 1,103,418 1,326,487 1,448,734 1,760,467 2,024,583 2,329,280 2,767,299 654 751 1,044 1,249 1,164 1,121 1,208 1,410 1,531 1,867 2,282 2,752 3,106 3,520 3,924 4,435 5,269 5,959 6,775 7,313 8,689 9,778 10,862 12,289 12,304 14,564 17,659 24,985 30,951 35,474 51,346 64,690 80,534 98,457 105,333 130,284 155,707 190,809 224,253 273,860 310,779 366,698 405,559 483,909 550,931 635,696 716,387 764,071 924,699 1,051,331 1,218,700 1,452,706 1,670,343 1,863,851 2,139,527 2,222,342 2,582,648 3,041,685 3,588,962 4,161,422 4,590,245 5,133,365 6,000,112 As a % of GDP (d) Domestic 13.7 13.6 18.9 23.2 20.1 17.0 18.6 21.8 22.5 24.3 28.9 34.1 38.7 41.1 43.3 45.7 50.3 50.7 48.5 47.1 46.1 49.7 52.0 46.6 39.7 40.9 42.0 39.5 38.4 37.5 43.7 41.8 45.6 42.6 33.6 38.6 38.7 40.2 44.4 46.7 41.6 40.9 40.0 42.8 43.0 43.3 46.4 43.5 45.5 49.1 53.8 58.0 60.0 56.0 54.7 51.6 50.3 47.9 48.5 49.8 45.8 42.8 42.6 Foreign 3.2 2.7 4.3 4.6 4.4 4.4 5.1 5.3 5.3 4.8 5.1 5.9 5.9 6.6 7.0 9.1 12.9 15.2 14.7 15.4 17.5 19.9 19.3 20.1 12.0 13.9 16.4 29.1 34.2 30.2 33.5 34.3 35.5 38.4 34.9 41.7 48.0 56.8 56.6 62.0 55.0 57.6 55.4 54.1 52.1 51.9 46.8 42.3 45.3 45.9 43.1 45.3 45.6 46.3 47.6 39.0 37.5 37.1 32.8 36.5 36.1 35.6 36.5

Rs. million Total 16.9 16.3 23.2 27.8 24.5 21.4 23.7 27.1 27.9 29.1 34.0 40.0 44.6 47.7 50.3 54.9 63.2 65.9 63.2 62.5 63.6 69.6 71.2 66.8 51.8 54.8 58.5 68.6 72.5 67.7 77.2 76.1 81.1 81.0 68.5 80.3 86.8 97.0 101.0 108.7 96.6 98.5 95.4 96.9 95.1 95.2 93.2 85.8 90.8 95.0 96.9 103.3 105.6 102.3 102.3 90.6 87.9 85.0 81.4 86.2 81.9 78.4 79.1

Table 1

(a) From 1950 to 1973, outstanding position as at end September and since then as at end December. Sources : Central Bank of Sri Lanka (b) Rupee denominated Treasury bills issued to foreign investors from 2008 and to the Sri Lankan diaspora Department of Census and Statistics and migrant workers from 2009 are excluded from domestic debt and included in foreign debt. (c) Rupee denominated Treasury bonds issued to foreign investors from 2007 and to the Sri Lankan diaspora and migrant workers from 2009 are excluded from domestic debt and included in foreign debt. (d) From 2003, based on GDP estimates compiled by the Department of Census and Statistics. (e) Provisional (f) Excludes government bonds of Rs. 78,441 million issued to CPC in January 2012.

62

Public Debt Management in Sri Lanka

government Debt
Item

Outstanding Government Debt as at end year (a) 2008 2,140,228 516,364 402,600 76,308 12,748 20,458 4,251 1,623,863 130,009 1,281,978 158,805 53,071 2,140,228 130,009 402,600 1,281,978 158,805 76,308 90,528 2,140,228 657,424 239,248 163,584 76,308 (644) 418,177 15,870 87,869 90,081 158,805 65,550 1,482,804 114,139 151,146 1,191,897 25,622 1,482,804 204,067 676,310 602,427 1,448,734 1,448,734 1,261,304 187,430 66,499 120,931 1,448,734 1,227,222 590,776 636,446 57,491 27,405 30,087 164,020 56,570 6,358 17,647 83,445 3,588,962 2009 2,400,955 560,646 441,032 73,881 11,994 24,188 9,551 1,840,309 112,292 1,513,512 168,079 46,427 2,400,955 112,292 441,032 1,513,512 168,079 73,881 92,160 2,400,953 705,766 109,593 37,451 73,881 (1,739) 596,172 17,251 160,081 188,576 168,079 62,186 1,695,188 95,040 243,499 1,324,936 31,713 1,695,189 257,084 806,192 631,914 1,760,467 1,760,467 1,362,806 397,661 62,304 335,357 1,760,467 1,271,142 623,174 647,967 78,649 41,866 36,783 410,677 114,384 40,410 145,124 110,759 4,161,422 2010 2,565,662 619,549 514,442 77,879 9,154 10,396 7,678 1,946,113 87,709 1,643,887 173,877 40,640 2,565,662 87,709 514,442 1,643,887 173,877 77,879 67,869 2,565,662 691,716 78,376 2,993 77,879 (2,496) 613,340 17,615 220,358 162,215 173,877 39,276 1,873,945 70,094 291,091 1,481,672 31,089 1,873,945 286,514 861,341 726,090 2,024,583 2,024,583 1,461,729 562,854 54,653 508,201 2,024,583 1,266,910 601,691 665,218 147,240 73,245 73,995 610,433 221,906 57,317 183,538 147,672 4,590,245 2011 2,804,085 698,190 590,885 94,743 11,479 150 933 2,105,895 61,961 1,819,251 183,845 40,838 2,804,085 61,961 590,885 1,819,251 183,845 94,743 53,400 2,804,085 886,221 263,329 169,797 94,743 (1,210) 622,892 16,234 185,756 206,547 183,845 30,511 1,917,864 45,727 235,333 1,612,704 24,100 1,917,864 314,319 950,474 653,071 2,329,280 2,329,280 1,640,117 689,163 53,460 635,703 2,329,280 1,328,797 624,634 704,163 235,923 97,282 138,642 764,560 341,704 70,123 199,531 153,202 5,133,365

Table 2 Rs. million 2012


Provisinal

Total Domestic Debt By Maturity Short-term Treasury bills (b) Provisional advances from the Central Bank Import bills held by commercial banks Other liabilities to the banking sector net of bank deposits Other (Administrative Borrowing) Medium and Long-term Rupee loans Treasury bonds (c) Sri Lanka Development Bonds Other By Debt Instrument Rupee loans Treasury bills (b) Treasury bonds (c) Sri Lanka Development Bonds Provisional advances Other By Institution Banks Central Bank By debt instrument Treasury bills (b) Provisional advances Other Commercial Banks By debt instrument Rupee loans Treasury bills Treasury bonds Sri Lanka Development Bonds Other Non bank sector By debt instrument Rupee loans(d) Treasury bills Treasury bonds Other By institution National Savings Bank Employees Provident Fund Other Total Foreign Debt By Type Project Loans Non-Project Loans Commodity Other By Institution Concessional Loans Multi-lateral Bi-lateral Non-Concessional Loans Multi-lateral Bi-lateral Commercial Loans International Sovereign bonds Non-resident investments in Treasury bills Non-resident investments in Treasury bonds Other (e) Total Outstanding Government Debt

3,232,813 813,272 629,070 111,292 18,340 53,638 933 2,419,541 58,386 2,095,054 222,994 43,107 3,232,813 58,386 629,070 2,095,054 222,994 111,292 116,017 3,232,813 1,058,366 265,198 154,005 111,292 (99) 793,168 15,870 219,748 242,819 222,994 91,737 2,174,447 42,516 255,317 1,852,235 24,379 2,174,447 330,150 1,173,870 670,427 2,767,299 2,767,299 1,846,772 920,527 56,599 863,928 2,767,299 1,369,568 670,692 698,876 455,069 173,600 281,469 942,662 445,063 80,184 317,604 99,812 6,000,112

Sources : Central Bank of Sri Lanka Ministry of Finance and Planning (a) Outstanding Treasury bills and Treasury bonds have been adjusted for secondary market transactions. (b) Excludes rupee denominated Treasury bills held by foreign investors from 2008 and the Sri Lankan diaspora and migrant workers from 2009. (c) Excludes government bonds of Rs. 4,397 million issued to CWE in November 2003, Rs. 78,441 million issued to CPC in January 2012 and rupee denominated Treasury bonds held by foreign investors from 2007 and the Sri Lankan diaspora and migrant workers from 2009. (d) Includes sinking fund (e) Includes outstanding defence loans

Public Debt Management in Sri Lanka

63

government Debt
Composition of Outstanding Government DebT as at end year

Table 3

Rs. million 2010 2,024,583 1,461,729 562,854 54,653 508,201 2,565,662 87,709 514,442 1,643,887 173,877 77,879 67,869 4,590,245 2011 2,329,280 1,640,117 689,163 53,460 635,703 2,804,085 61,961 590,885 1,819,251 183,845 94,743 53,400 5,133,365 2012 (a) 2,767,299 1,846,772 920,527 56,599 863,928 3,232,813 58,386 629,070 2,095,054 222,994 111,292 116,017 6,000,112

Source 1. Foreign Debt 1.1 Project Loans (b) 1.2 Non-Project Loans Commodity (c) Other (d) 2. Domestic Debt 2.1 Rupee loans(e) 2.2 Treasury bills (f) 2.3 Treasury bonds (g) 2.4 Sri LankaDevelopment Bonds 2.5 Central Bank Advances (h) 2.6 Other (i) Total

2003 843,882 769,559 74,323 68,891 5,431 1,019,969 248,414 219,295 483,107 8,816 31,204 29,133 1,863,851

2004 996,138 914,232 81,906 73,835 8,071 1,143,389 164,758 243,886 643,349 26,083 34,791 30,522 2,139,527

2005 956,620 865,494 91,126 69,116 22,010 1,265,722 140,563 234,174 751,569 25,519 39,746 74,151 2,222,342

2006 1,103,418 978,356 125,062 69,021 56,041 1,479,230 116,713 257,732 885,972 62,469 49,015 107,329 2,582,648

2007 1,326,487 1,087,359 239,128 68,665 170,463 1,715,198 131,509 307,012 1,018,852 86,459 60,679 110,686 3,041,685

2008 1,448,734 1,261,304 187,430 66,499 120,931 2,140,228 130,009 402,600 1,281,978 158,805 76,308 90,528 3,588,962

2009 1,760,467 1,362,806 397,661 62,304 335,357 2,400,955 112,292 441,032 1,513,512 168,079 73,881 92,160 4,161,422

Sources : Central Bank of Sri Lanka Ministry of Finance and Planning

(a) Provisional (b) Represents the amounts withdrawn and outstanding on the loans contracted with the IBRD, USA, Canada, Denmark, Peoples Republic of China, Germany, UK, India, IDA, ADB, Netherlands, Kuwait, OPEC, Japan, UAE, IFAD, Skandinaviska Enskilda Benkens - Sweden, Salomon Brothers Incorporated-New York, Bank Indosuez, BFCE-France, Citibank International of USA, Australia, Austria, Saudi Arabian Fund, EIB, Hong Kong and Korea. (c) Represents the amounts withdrawn and outstanding on the loans contracted with the USA, Canada, Germany, Japan, France, India, Italy, Pakistan, and Netherlands. (d) Includes cash loans received from the ADB, USA, China, Germany , Japan, OPEC , rupee denominated Treasury bonds from 2007 and Treasury bills from 2008 issued to foreign investors, Treasury bills and Treasury bonds issued to Sri Lankan diaspora and migrant workers from 2009, the international sovereign bonds and outstanding defence loans. (e) Includes the market value of investments held by the Joint Investment Fund on behalf of the sinking funds. (f) Excludes outstanding Treasury bills issued to foreign investors from 2008 and Sri Lankan diaspora and migrant workers from 2009. (g) Excludes government bonds of Rs. 4,397 million issued to CWE in November 2003, Rs. 78,441 million issued to CPC in January 2012 and rupee denominated Treasury bonds held by foreign investors from 2007 and the Sri Lankan diaspora and migrant workers from 2009. (h) Excludes contributions to international financial organisations. (i) Includes administrative borrowings arising from foreign loans channelled through government or semi-government agencies and outstanding borrowings from Offshore Banking Units (OBUs).

64

Public Debt Management in Sri Lanka

government Debt
Ownership of outstanding Government Debt as at end year (a) Owner 1. Domestic Debt(c) 1.1 Banking Sector Central Bank Commercial Banks 1.2 Non-Bank Sector Market Borrowings Savings Institutions Insurance Funds Provident and Pension Funds (d) Official Funds (e) Private Business and Individuals (f) Non Market Borrowings 2. Foreign Debt Total 2003 1,019,969 228,411 44,587 183,824 791,557 784,104 138,939 24,828 333,289 40,739 246,309 7,453 843,882 1,863,850 2004 1,143,389 272,981 113,017 159,965 870,409 858,321 151,158 27,398 369,205 46,341 264,219 12,088 996,138 2,139,526 2005 1,265,722 298,411 78,364 220,047 967,311 951,547 169,590 20,704 423,283 65,825 272,145 15,764 956,620 2,222,342 2006 1,479,230 395,470 117,624 277,846 1,083,760 1,069,577 166,457 13,234 480,731 95,988 313,166 14,183 1,103,418 2,582,648 2007 415,318 104,817 310,501 2008 657,425 239,248 418,177 2009 705,766 109,593 596,172 2010 691,716 78,376 613,340 2011 2,804,085 886,221 263,329 622,892 1,917,864 1,916,930 314,319 34,356 959,303 161,568 447,385 933 2,329,280 5,133,365

Table 4 Rs.million 2012 (b) 3,232,813 1,058,366 265,198 793,168 2,174,447 2,173,513 330,150 33,768 1,204,729 178,900 425,967 933 2,767,299 6,000,112

1,715,198 2,140,228 2,400,955 2,565,662

1,299,879 1,482,804 1,695,189 1,873,945 1,289,688 1,478,553 1,685,638 1,866,267 192,413 21,012 595,807 107,480 372,976 10,191 204,067 25,976 698,192 107,234 443,084 4,251 257,084 34,490 835,402 132,485 426,177 9,551 286,514 32,839 884,279 167,374 495,261 7,678

1,326,487 1,448,734 1,760,467 2,024,583 3,041,685 3,588,962 4,161,422 4,590,245

(a) Outstanding Treasury bills and Treasury bonds have been adjusted for secondary market transactions. (b) Provisional

Sources : Central Bank of Sri Lanka Ministry of Finance and Planning

(c) Excludes government bonds of Rs. 4,397 million issued to CWE in November 2003 and Rs. 78,441 million issued to CPC in January 2012. (d) Trusts, Benevolent, Pension and Provident Funds and the Employees Provident Fund (e) The Central Government, Local Authorities, State Corporations, Departmental and other official funds (f) Includes the value of Treasury Certificates of Deposits, Public Debt Sinking Funds (the Investment Fund w.e.f. September,1971) and the National Housing Sinking Fund.

Public Debt Management in Sri Lanka

65

Domestic Debt

Details of Outstanding Treasury Bonds as at end 2012 (a)

Table 5

Maturity Date 15/01/2013 01/02/2013 01/04/2013 15/06/2013 15/07/2013 01/08/2013 01/09/2013 05/10/2013 01/11/2013 21/11/2013 01/02/2014 01/03/2014 01/04/2014 01/06/2014 15/07/2014 01/10/2014 15/01/2015 15/03/2015 15/06/2015 15/07/2015 01/08/2015 01/09/2015 01/11/2015 01/04/2016 01/06/2016 01/08/2016 01/09/2016 01/10/2016 01/01/2017 15/01/2017 15/06/2017 15/07/2017 01/02/2018 15/07/2018 15/08/2018 15/11/2018 15/01/2019 01/05/2019 01/11/2019 01/06/2020 01/08/2020 01/01/2022 01/10/2023 01/03/2026 01/01/2032 Total

Issue Date 15/01/2003 01/02/2009 01/04/2007 15/06/2009 15/07/2003 01/08/2003 01/09/2010 05/10/2011 01/11/2003 21/11/2011 01/02/2010 01/03/2010 01/04/2008 01/06/2010 15/07/2009 01/10/2011 15/01/2011 15/03/2009 15/06/2011 15/07/2010 01/08/2009 01/09/2009 01/11/2011 01/04/2010 01/06/2011 01/08/2010 01/09/2011 01/10/2010 01/01/2012 15/01/2011 15/06/2012 15/07/2011 01/02/2003 15/07/2003 15/08/2003 15/11/2011 15/01/2011 01/05/2009 01/11/2011 01/06/2012 01/08/2010 01/01/2012 01/10/2003 01/03/2011 01/01/2012

Series 08.50%2013A 13.50%2013A 10.50%2013A 11.50%2013A 08.50%2013B 07.50%2013A 06.75%2013A 08.84%2013A 07.50%2013B 09.22%2013A 06.60%2014A 07.00%2014A 11.75%2014B 06.60%2014B 11.25%2014A 09.00%2014A 06.20%2015A 11.75%2015A 06.20%2015B 06.50%2015A 11.00%2015A 11.00%2015B 08.50%2015A 07.25%2016A 08.00%2016B 06.40%2016A 08.00%2016A 06.40%2016B 08.00%2017A 05.80%2017A 08.00%2017B 05.80%2017B 08.50%2018A 08.50%2018B 07.50%2018A 08.00%2018A 05.65%2019A 08.50%2019A 08.00%2019A 08.00%2020A 06.20%2020A 08.00%2022A 07.00%2023A 05.35%2026A 08.00%2032A 45

ISIN LKB01013A157 LKB00413B018 LKB00613D019 LKB00413F159 LKB01013G154 LKB01013H012 LKB00313I015 LKB00213J056 LKB01013K016 LKB00213K211 LKB00414B016 LKB00414C014 LKB00614D017 LKB00414F017 LKB00514G152 LKB00314J011 LKB00415A155 LKB00615C156 LKB00415F154 LKB00515G159 LKB00615H015 LKB00615I013 LKB00415K014 LKB00616D012 LKB00516F019 LKB00616H013 LKB00516I013 LKB00616J019 LKB00517A018 LKB00617A156 LKB00517F157 LKB00617G153 LKB01518B013 LKB01518G152 LKB01518H150 LKB00718K151 LKB00819A158 LKB01019E016 LKB00819K017 LKB00820F015 LKB01020H017 LKB01022A018 LKB02023J016 LKB01526C014 LKB02032A016

Face Value (Rs. mn.) 72,934.6 77,006.7 80,259.1 56,044.0 64,397.3 79,593.3 70,270.3 398.0 59,449.6 467.4 53,752.4 75,848.1 77,844.5 77,256.0 65,352.9 22,947.0 49,826.5 76,458.4 39,782.5 83,666.0 77,866.1 68,964.4 7,665.6 72,532.7 40,473.4 78,620.8 18,596.0 34,533.0 41,386.7 50,890.9 18,771.5 80,984.1 69,872.0 49,692.1 78,222.9 9,043.0 7,989.6 82,174.6 23,179.8 9,549.5 71,349.9 49,246.2 60,324.9 59,548.1 67,624.9 2,412,657.3

(a) Includes Treasury bonds held by non-residents and excludes Rs. 4,397 million issued to CWE in 2003 and Rs. 78,441 million issued to CPC in January 2012.

Source: Central Bank of Sri Lanka

66

Public Debt Management in Sri Lanka

Domestic Debt
Maturity Date 26/03/2013 30/06/2013 15/07/2013 15/07/2013 16/03/2014 29/06/2014 18/08/2014 16/03/2015 16/03/2015 29/06/2015 29/06/2015 18/08/2015 18/08/2015 26/03/2016 30/06/2016 18/08/2016 Total Issue Date

Table 6

Details of Outstanding Sri Lanka Development Bonds as at end 2012 Series SLDB2013C SLDB2013D SLDB2013E SLDB2013B SLDB2014A SLDB2014B SLDB2014C SLDB2015D SLDB2015A SLDB2015B SLDB2015E SLDB2015F SLDB2015C SLDB2016D SLDB2016B SLDB2016C 16 ISIN LKG00313C260 LKG00313F305 LKG00313G154 LKG00513G159 LKG00314C169 LKG00314F295 LKG00314H184 LKG00315C166 LKG00415C164 LKG00415F290 LKG00315F292 LKG00315H181 LKG00415H189 LKG00416C261 LKG00516F303 LKG00516H184 Face Value (US Dollar mn.) 55.0 102.0 195.0 398.1 134.0 106.0 81.0 74.5 93.0 23.0 229.0 141.1 30.0 12.0 25.0 55.0 1,753.6
Source: Central Bank of Sri Lanka

26/03/2010 30/06/2010 15/07/2010 15/07/2008 16/03/2011 29/06/2011 18/08/2011 26/03/2012 16/03/2011 29/06/2011 02/07/2012 24/09/2012 18/08/2011 26/03/2012 30/06/2011 18/08/2011


Maturity Date 01/04/2013 01/04/2015 01/05/2015 01/07/2015 01/02/2023 Total

Details of Outstanding Rupee Loans as at end 2012 Issue Date 01/04/2005 01/04/2005 01/05/2005 01/07/2005 01/02/1993 5 Series 09.40%2009-2013 09.50%2009-2015 09.50%2009-2015A 11.00%2009-2015 12%2023 Interest Rate 9.40 9.50 9.50 11.00 12.00

Table 7

Face Value (Rs. mn.) 2,868.0 26,000.0 1,366.4 4,063.4 24,088.0 58,385.8
Source: Central Bank of Sri Lanka

Public Debt Management in Sri Lanka

67

Domestic Debt
Changes in Relative Composition of Government 2008 1. Maturity (%) Short-term Medium and long-term 2. Marketability (%) Marketable Non-marketable 3. Investor base (%) Central Bank Commercial banks Captive sources Others 4. Maximum maturity in the yield curve (yrs) Primary market Secondary market 10 6 10 6 10 10 15 15 9 11 56 24 2 18 54 27 0 18 55 27 7 17 54 23 93 7 95 5 96 4 97 3 22 78 21 79 23 77 24 76 2009 Securities (a) 2010 2011

Table 8

2012

23 77

98 2

6 17 57 20

20 15

(a) Treasury bills, Treasury bonds, Rupee loans only. Excludes Treasury bills and Treasury bonds held by non-residents

Sources : Central Bank of Sri Lanka Ministry of Finance and Planning


Maturity Profile of Domestic Debt as at end 2012 (a) Instrument Maturity Year Treasury bill(b) Treasury bond (b) (c) Rupee loan 2013 2014 2015 2016 2017 2018 2019 2020 2022 2023 2026 2032 Total 629,070 629,070 460,207 323,405 314,013 204,069 162,978 203,834 108,944 80,899 49,246 60,325 59,548 67,586 2,095,054 2,868 31,430 24,088 58,386

Table 9 Rs. million OBU loans (d) 19,074 19,074 Total 1,206,599 364,223 420,540 215,768 162,978 203,834 108,944 80,899 49,246 84,413 59,548 67,586 3,024,578

SLDB (d) 95,380 40,819 75,097 11,699 222,994

(a) Other liabilities to the banking sector are not included. (b) Excludes Treasury bonds and Treasury bills issued to non-residents. (c) Excludes Treasury bonds of Rs. 4,397 million issues to CWE in 2003 and Treasury bonds of Rs. 78,441 million issued to CPC in 2012 (d) Exchange rate used for conversion is 1 US Dollar=Rs.127.1608 (End 2012 rate).

Source : Central Bank of Sri Lanka

68

Public Debt Management in Sri Lanka

Domestic Debt
Future Domestic Currency Debt Obligations as at end 2012 Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Capital 490,610 344,313 396,693 211,691 145,143 163,280 94,251 58,994 32,726 69,805 25,515 34,944
(a)

Table 10 Rs. million

Interest Total 324,007 170,052 150,792 113,781 109,697 91,460 49,502 46,360 19,649 41,887 28,872 8,596 8,596 41,036 5,410 5,410 5,410 5,410 5,410 48,905 814,616 514,365 547,485 325,472 254,840 254,741 143,753 105,354 19,649 74,614 98,677 8,596 8,596 66,551 5,410 5,410 5,410 5,410 5,410 83,849 3,348,207
Source : Central Bank of Sri Lanka

Total 2,067,967 1,280,240 (a) Represents capital payments (book values of Treasury bonds and Rupee loans) and interest payments (coupon payments and discounts of Treasury bonds, Treasury bills and Rupee loans) as at end 2012. Ownership of Treasury Bills (a) Ownership 1.Bank Sector 1.1 Central Bank 1.2 Commercial Banks 2. Non Bank Sector 2.1 Employees Provident Fund 2.2 Other Provident Funds 2.3 Savings Institutions 2.4 Insurance and Finance Companies 2.5 Departmental and Other Official Funds 2.6Private and Other 3. Foreign Investors (b) Total 6,898 104,016 9,957 77,206 19,574 72,867 28,173 63,131 29,481 117,707 307,013 16,431 102,882 6,358 21,452 171,757 40,410 7,742 562 18,034 5,963 8,623 10,988 7,192 2003 58,002 13,365 44,637 2004 118,843 78,162 40,681 2005 2006 2007 113,782 44,964 68,818 193,231 5,208 166 32,046 2008 251,453 163,584 87,869 151,146 1 55 20,791 2009 197,532 37,451 160,081 243,499 420 42,677

Table 11 Rs. million 2012


Provisional

2010 223,351 2,993 220,358 291,091 5,969 15 52,541 12,072 20,636 199,858 53,317 571,759

2011 355,552 169,797 185,756 235,333 1,279 58,733 11,010 5,968 158,344 70,123 661,009

78,102 122,175 38,951 39,151 69,370 52,805

373,753 154,005 219,748 255,317 33,410 122 61,972 19,097 2,566 138,149 80,184 709,254

161,293 125,043 156,072 135,558 5,198 906 36,534 5,000 805 31,513 5,659 39,938 4,793 42 33,456

219,295 243,886 234,174 257,732

408,958 481,4441

(a) Adjusted for secondary market transactions. (b) Includes diaspora investments

Sources : Central Bank of Sri Lanka Ministry of Finance and Planning

Public Debt Management in Sri Lanka

69

Domestic Debt
Ownership of Treasury Bonds (a)(b)(c) Ownership 1. Bank Sector 1.1 Central Bank 1.2 Commercial Banks 2. Non-Bank Sector 2.1 Employees Provident Fund 2.2 Other Provident Funds 2.3 Savings Institutions 2.4 Insurance and Finance Companies 2003 65,246 65,246 417,861 187,665 287 54,499 20,740 17,375 137,294
483,107

Table 12 Rs million 2009 188,576 188,576 718,717 13,766 195,588 33,194 21,949 341,722
145,124

2004 33,350 33,350 609,999 283,428 240 92,227 26,551 23,641 183,912
643,349

2005 55,118 55,118 696,452 344,830 104,235 8,214 34,922 204,251


751,569

2006 46,595 46,595 839,377 408,757 4,940 112,062 13,632 58,061 241,925
885,972

2007 58,416 58,416 960,436 501,331 7,862 134,994 21,215 69,588 225,446
49,647 1,068,499

2008 90,082 90,082 607,770 9,507 164,457 26,410 90,778 292,975


17,647

2010 162,215 162,215 814,451 19,872 221,805 33,624 36,963 354,957


183,538 1,827,425

2011 206,547 206,547 1,612,704 927,374 7,550 246,418 34,410 37,006 359,946
199,531 2,018,782

2012 Provisional 242,819 242,819 1,852,235 1,117,360 30,639 261,309 31,711 37,596 373,620
317,604 2,412,657

1,191,897 1,324,936 1,481,672

2.5 Departmental and Other Official Funds 2.6 Private and Other 3. Foreign Investors (c) Total

1,299,625 1,658,636

Issued to CPC in January 2012. (c) Includes diaspora investments.

Sources : Central Bank of Sri Lanka (a) Adjusted for secondary market transactions. Ministry of Finance and Planning (b) Excludes government bonds of Rs. 4,397 million issued to CWE in November 2003 and Rs. 78,441 million


Ownership of Rupee Loans Ownership 1. Bank Sector 1.1 Central Bank 1.2 Commercial Banks 2. Non Bank Sector 2.1 Savings Institutions 2.2 Departmental and Other OfficialFunds(a) 2.3 Employees Provident Fund 2.4 Other Provident Funds 2.5 Insurance Corporations 2.6 Insurance Companies 2.7 Other State Corporations 2.8 Other(b) Total 17,550 130,319 7,144 285 1,575 154 248,414 12,742 74,308 5,425 285 3,099 164,758 9,754 56,068 6,105 1,575 161 140,562 9,755 56,068 6,132 1,575 158 116,713 8,410 68,921 12,320 1,575 4,475 131,509 8,400 68,539 12,327 1,575 4,477 130,009 6,111 56,583 11,417 1,575 535 112,292 6,103 40,921 10,369 532 87,709 6,101 23,100 7,358 61,961 2003 43,481 43,481 204,933 47,906 2004 41,481 41,481 123,277 27,418 2005 41,481 41,481 99,081 25,418 2006 22,088 22,088 94,625 20,938 2007 15,870 15,870 115,639 19,938 2008 15,870 15,870 114,139 18,820 2009 17,252 17,252 95,040 18,820 2010 17,615 17,615 70,094 12,168 2011 16,234 16,234 45,727 9,168

Table 13 Rs. million


Provisional

2012

15,870 15,870 42,516 6,868 5,190 23,100 7,358 58,386

(a) Including Employees Trust Fund. (b) Comprises Sinking Funds, co-operative banks, other companies, institutions and individuals.

Sources : Central Bank of Sri Lanka Ministry of Finance and Planning

70

Public Debt Management in Sri Lanka

Foreign Debt
Creditor Category/ Use of Funds Cash(b) Food

Composition of Outstanding Foreign Debt AS AT END 2012(a) Bi-lateral 476 Multi-lateral 91 Commercial 445,063 Export Credit Total Debt 445,630 25,356 103,845 418,298 100.0 21,750

Table 14 Rs. million % of Total 16.1 0.9 0.8 63.0 0.3

Commodity

Goods & Services Programme Other(c) % Project

17,331 11,280

25,356

9,477

16 4,420 208,991 -

9,493

791,361

Total Debt

855,996 30.9

715

738,800

92,565 12,835 30.5

3,775

844,292

403,040

851,877 30.8

215,135 7.8

1,709

1,742,927

3.8

2,767,300

100.0

15.1

Sources : Central Bank of Sri Lanka (a) Provisional Ministry of Finance and Planning (b) Includes Sovereign bonds issued in 2009, 2010, 2011 and 2012 (c) Includes Treasury bonds and Treasury bills held by non-residents. Table 15

Source 1. Multi-lateral ADB EIB

2003 195,895 204 599 405,156

Ownership of Outstanding Foreign Debt 2004 2005 2006 2007 2008 235,741 3,545 221 477,079 230,510 4,838 220 459,837 534,356 269,211 9,345 228 292,151 15,326 231 580,719 317,763 18,010 240 618,181

Rs. million 2009 344,661 20,463 665,040 2010 358,872 18,792 674,936 2011 383,461 18,054 721,916 2012(a) 844,292 23,438 322

448,421

IBRD IFAD IDA

199,782 7,116 538

226,926 1,329 7,886

213,916 7,109 1,582

242,940 2,098 7,997

258,748 8,719 2,357

267,475 9,052 2,355

284,074 10,309 3,360 2,173

281,217 11,032 1,913 3,110

302,244 13,007 2,052 3,099

349,997 16,013 2,699 3,403

France(b) India

Canada

2. Bi-lateral

Nordic Development Fund

OPEC

398,925 7,746

1,023

465,513 8,521

1,431

433,382 8,635

1,662

486,530 8,753

2,537

564,500 9,852

3,188

666,533 7,718

3,285

684,750 8,488

739,213 8,134

842,804 7,701

980,345 8,269

Germany

46,657 255,277 2,645 3,115 2,939 6,702

8,735

56,301 301,434 2,574 3,388 10,311

10,177

49,374 277,882 2,196 43 3,573 10,118

8,726

Netherlands

Kuwait

Japan

305,897 2,080 327 3,794

12,382

61,644

9,714

327,711 1,455 749 3,855

14,843

65,977

10,255

426,936 4,649 751

15,294

61,528

12,424

426,767 5,103 291

17,902

58,279

15,021

478,931 5,237 87

17,292

50,263

18,427

529,013 5,799 -

41,927

47,547

19,503

547,515 6,194

78,322

51,164

24,273

Other (c)

USA

Saudi Arabian Fund

Peoples Republic of China

3,342 57,078

3,604 55,341

5,121 57,310

22,668 52,797

29,688 50,708 1,217

46,641 46,952 2,328

56,459 42,414 2,338

59,497 40,318 2,544

11,872 41,386 2,648

55,229

Solomon Bros. Inc. - New York Other Citi Bank/NEXI

France

Riggs National Bank Indo-Suez Bank (France & Stockholm) Bankers Trust Co.

3. Financial Markets

39,801 3,746 129 877 774 -

9,881

53,579 3,980 108 876 739 -

12,387

63,401 3,769 82 786 627 -

13,892

82,533 3,843 48 754 560 -

19,508

181,268 3,746 16 685 462 -

54,339

164,020 3,674 634 374 -

55,619

410,677 3,476 560 270 406,370 114,384 40,410 145,124 106,452 1,760,467 -

56,978

610,433 3,140 466 157 606,670 57,317 183,538 143,909 2,024,583 -

59,633

764,560 2,984 399 54 761,124 70,123 199,531 149,766 2,329,280 -

88,957

942,662 3,064 356 -

208,702

International Sovereign bonds Non-resident investments in Treasury bills Non-resident investments in Treasury bonds Other

24,640 24,640

9,635

10,433 37,411 37,411

40,055 40,055

18,082

50,206 50,206

27,122

151,722 54,360

24,637

148,024 56,570 6,358

11,314

221,906

341,704

445,063 80,184 317,604 96,391 2,767,299

939,242

49,647 47,715 1,326,487

17,647 67,449 1,448,734

843,882 996,138 956,620 1,103,418 Total (a) Provisional. (b) Includes loans from financial institutions. (c) Includes Rs. 78.3 billion export credit obtained from Exim Bank of China.

Public Debt Management in Sri Lanka

71

Foreign Debt
Foreign Loans - 2012 Type and Source 1. Project Loans ADB Australia Austria China EIB Canada Denmark Gross Receipts 241,662 37,582 Repayments 74,711 11,182 1,105 Net Change in the Liability(a) 166,951 26,400 -1,105

Table 16 Rs. million Liability as at end December 1,846,772 441,396 8,471

65,618 3,995

721

777 -

2,638 1,349

369

-721

62,980 2,646

-369

13,921

777

91,605 20,700

5,011

22,118 2,816

Finland France Germany India IDA

2,558

381

Hong Kong

327

31,338

2,498

690

2,520

-2,171

1,868

-381

Japan Korea Kuwait

20,765

48,025

6,085 285 -

26,743

7,438 843 575 297 241 -

457

30,881

-2,520

39,469

25,355 4,330

13,327

21,282

349,997

58,662

5,242 -290 -

549,857 29,082 5,509 8,748 2,416 2,358 4,534

Netherlands

Opec Fund for International Development Saudi Arabian Fund Spain UK Sweden USA

661 55

3,034

202 228

-186

364

62

Other

20,495

1,683

11,310 118,818

1,241

-1,621

2,806

-202

13,820 26,407 17,925

-1,241 9,185

102,265 920,527

2. Non-Project Loans Canada France India

2.1 Commodity Loans

240,597

2,364

121,779

198

-2,364

Germany USA (b)

Pakistan

51

-198

56,599

518

-51

2,351

Netherlands

Japan

284 42

-518

15,670

91

-284 -42

4,332

5,747

1,271 116,454

-1,271 124,143 -5,907 701

27,601

809

2.2 Other Loans ADB China

240,597 210 804 239,583 -

6,117 103 -

863,928 1,423

7,025 -

Germany Japan Other (c)

USA

436 109,798 -

-436 129,785 127,202

Grand Total (d)

Memo: Liability due to variations in exchange rates

855,480

482,259

193,529

288,730

2,767,299

(a) This includes the impact of exchange rate variation. (b) Comprises P.L. 480 loans and loans from the Agency for International Development. (c) Includes rupee denominated Treasury bonds (since 2007) and Treasury bills (since 2008) issued to foreign investors and Treasusy bonds and Treasury bills issued to Sri Lankan diaspora and migrant workers (since 2009) and proceeds from the international sovereign bonds issued. (d) Liability as at end 2012 includes outstanding defence loans.

Sources : Central Bank of Sri Lanka Ministry of Finance and Planning

72

Public Debt Management in Sri Lanka

Foreign Debt
Category 1. Lender Bi-lateral Multi-lateral Commercial(b) Export Credits 2. Use of Funds Cash(b) Commodity Food Goods & Services Programme Project Technical Assistance

Foreign Loan Disbursements by Source Disbursements 2003 87,638 29,888 41,119 10,082 6,549 87,638 2,321 33,012 52,220 85 2004 78,299 35,110 29,219 5,268 8,702 78,299 11 3,196 3,091 66,331 401 2005 75,180 25,552 35,014 10,208 4,406 75,180 10,209 280 1,987 62,472 232 2006 92,296 38,614 33,942 10,756 8,984 92,296 9,138 3,227 5,362 73,052 127 2007 50,102 29,126 95,147 8,671 2008 42,248 39,981 31,127 16,272 2009 256,402 60,131 48,547 109,371 38,353 256,402 57,404 314 593 145,850 275 151,967 2010 59,272 52,685 52,028 2011

Table 17

Rs. million 2012 (a)

183,046 129,628

327,878 322,771 482,259 78,739 109,165 54,459 44,611 65,782 56,807

163,892 144,963 250,505

183,046 129,628 56,202 2,515 270 288 38,941 58 1,791 249 14,970

327,878 322,771 482,259 111,926 109,488 130,695 126 4,788 302 51,967 3,254 194 232 2,316 210

84,830 112,560

158,770 174,097 227,041 35,507 121,997

5,268 1,390 Other(c)

Sources : Central Bank of Sri Lanka (a) Provisional Ministry of Finance and Planning (b) Include Sovereign bonds issued in 2009, 2010, 2011 and 2012 (c) Includes Treasury bonds and Treasury bills(net) issued to non-residents since 2007.

Public Debt Management in Sri Lanka

73

Debt Service Payments


Year 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (e)

Government Debt Repayments And Interest Payments Principal Repayments Interest Payments Total 947 1,165 1,182 1,502 1,608 2,612 5,025 2,229 6,897 7,525 5,592 9,680 9,538 12,210 17,782 26,078 27,290 22,671 36,546 33,240 28,483 59,968 41,762 104,526 84,765 167,843 219,508 180,781 224,707 293,525 317,834 380,330 518,439 467,856 538,683 608,970 Domestic(c) 811 1,055 1,277 1,787 3,025 4,189 5,336 5,115 5,458 6,553 7,593 9,694 11,015 16,990 17,960 21,201 25,101 32,520 32,064 42,184 48,554 47,598 53,371 62,185 84,560 105,897 113,540 105,878 113,164 133,787 158,701 182,198 273,977 297,127 288,134 317,659 Foreign(d) 136 285 357 412 713 915 1,270 1,623 1,970 2,209 2,564 2,896 3,337 3,678 4,113 4,739 5,102 5,511 6,162 6,739 6,692 7,300 8,752 9,015 9,747 10,617 11,586 13,904 6,995 16,990 23,980 30,277 35,698 55,464 68,565 Foreign(b) 434 501 499 600 607 674 1,165 1,465 1,789 3,020 4,690 5,209 5,742 4,906 4,881 7,955 6,963 7,606 8,477 10,491 13,251 18,351 21,440 23,282 27,921 37,057 34,425 33,041 21,360 45,989 65,934 121,609 114,716 78,184 98,789 193,529

Table 18 Rs. million Total 947 1,340 1,634 2,199 3,738 5,104 6,606 6,738 7,428 8,762 10,157 12,590 14,352 20,668 22,073 25,940 30,203 38,031 38,226 48,923 55,246 54,898 62,123 71,200 94,307 116,514 125,126 119,782 120,159 150,777 182,681 212,475 309,675 352,592 356,699

Domestic(a) 513 664 683 902 1,001 1,938 3,860 764 5,108 4,505 902 4,471 3,796 7,304 12,901 18,123 20,327 15,065 28,069 22,749 15,232 41,617 20,322 81,244 56,844 130,786 185,083 147,740 203,347 247,536 251,900 258,720 403,723 389,672 439,894 415,441

(a) Excludes Treasury bond payments to non-residents. (b) Includes Treasury bond payments to non-residents and pre-mature liquidation of non-resident investments. (c) ExcludesTreasury bill & Treasury bond interest payments to non-residents. (d) Includes Treasury bill & Treasury bond interest payments to non-residents. (e) Provisional.

90,839 408,498 Sources : Central Bank of Sri Lanka Ministry of Finance and Planning

74

Public Debt Management in Sri Lanka

government borrowings
Issues and Maturities of Domestic Debt in 2011 and Maturity Treasury bills 0 < M 91 days 91 < M 182 days 182 < M 364 days 2011 Issues 359,497 359,875 445,198 1,164,570 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 9 year 10 year 12 year 13 year 14 year 15 year 19 year 20 year 2 year 3/4 year 3/6 year 4/6 year 4/7 year 3/7 year 3/10 year 2 year 3 year 4 year 5 year <= 1 year 2 years 3 years 29,832 40,644 119,364 57,353 99,450 44,194 45,261 60,866 32,869 19,358 50,022 62 2,282 1,394 602,951 35,321 16,086 8,785 60,192 5,465 5,465 1,833,177 Repayments 308,834 336,882 429,605 1,075,321 33,974 130,739 137,430 36,308 73,143 411,594 1,904 1 6 5,011 2 18,824 25,748 54,924 54,924 5,992 5,992 1,573,579 Net Issues 50,663 22,994 15,593 89,249 (4,142) (90,094) (18,066) 21,045 26,307 44,194 45,261 60,866 32,869 19,358 50,022 62 2,282 1,394 191,357 (1,904) (1) (6) (5,011) (2) (18,824) (25,748) (54,924) 35,321 16,086 8,785 5,268 (528) (528) 259,598

Table 19 2012(a) 2012 Repayments 616,202 490,901 494,635 1,601,738 30,332 108,749 120,390 99,163 86,409 8,980 454,023 3,575 3,575 36,683 5,395 42,079 2,101,415 Net Issues (67,423) 172,656 (56,987) 48,246 72,308 (36,220) (41,689) (12,147) 67,233 92,754 39,994 29,659 4,801 44,445 9,241 16,059 53,215 14,410 354,062 (3,575) (3,575) (36,683) 53,479 1,564 18,359 417,092 Rs. million

Issues (b) 548,780 663,556 437,648 1,649,984 102,640 72,529 78,701 87,016 153,642 101,734 39,994 29,659 4,801 44,445 9,241 39,814 16,059 53,215 14,410 847,898 58,874 1,564 60,437 2,558,320

Total Treasury bonds

Total Rupee loans

Total Sri Lanka Dev. Bonds

Total Loans from OBUs Total Grand Total

(a) Face Value. (b) Excludes T-bonds of Rs. 78,441 million issued to CPC in January 2012.

Source : Central Bank of Sri Lanka

Public Debt Management in Sri Lanka

75

Government Borrowings

Table 20 2012 Rupee loans Treasury bills 52 710,000 1,763,958 728,341 485,332 436,312 1,649,984 Treasury bonds 24 53,000 124,460 59,326 788,572 847,898 Rs. million Rupee loans -

Auction and Primary Issue Details in 2011 and 2012(a) Treasury bills 52 521,500 1,073,288 489,073 217,584 457,913 1,164,570 Treasury bonds 24 21,000 60,518 26,107 576,844 602,951 2011

Auctions Number of Auctions Amount Offered Amount Received Amount Accepted CBSL Purchases Placements Total Issues (a) Face Value.

Source: Central Bank of Sri Lanka Table 21 Rs. million 2012 Usage 994,090 671,319 322,771 671,319 514,647 79,617 16,864 60,192 322,771 177,809 144,962 994,090 Approved Limit 1,139,000 767,800 371,200 767,800 666,900 50,000 14,700 36,200 371,200 270,300 100,900 1,139,000 Usage 1,139,000 656,741 482,259 656,741 513,056 16,782 16,549 60,437 49,917 482,259 231,754 250,505 1,139,000

Government Borrowing Limits and Usage in 2011 and 2012

2011 Approved Limit 1. Gross Borrowing 1.1. Domestic 1.2. Foreign 2. Sources of Financing 2.1. Domestic Financing 2.1.1. Rupee loans 2.1.2. Treasury bonds(a) 2.1.3. Treasury bills (net)(b) 2.1.4. CBSL Advances 2.1.5. SLDBs 2.1.6. OBU Loans 2.1.7. Other 2.2. Foreign Financing 2.2.1. Project/Programme Loans 2.2.2. Other(c) Total Financing 658,100 539,200 40,000 15,000 63,900 338,900 179,200 159,700 997,000 997,000 658,100 338,900

Sources : Central Bank of Sri Lanka Ministry of Finance and Planning (a) Excludes Treasury bonds issued to non-residents and Rs. 53.9 billion (Book value) and Rs. 13.5 billion (Book value) Treasury bonds issued to CPC and Sri Lankan Air Lines. (b) Excludes Treasury bills (net) issued to non-residents (c) Includes Treasury bonds, Treasury bills(net) issued to non-residents, International Sovereign bonds and non-project loans

76

Public Debt Management in Sri Lanka

government borrowings

Financing of the Government Net Cash Deficit 2003


(133,123) 308,717 (441,839) 133,123 79,910 79,830 48,113 87,400 (39,287) 14,917 137,093 (15,179) 171 (15,617) (2,268) 80 53,213 85,317 20,422 64,895 (11,682) 2,321 4,783 (2,462) 9,220 (9,220)

Table 22 Rs. million

Item 1. NET CASH SURPLUS (+) / DEFICIT (-) 1.1 Revenue and grants 1.2 Expenditure(b) 2. FINANCING OF THE DEFICIT 2.1 Domestic Financing 2.1.1 Domestic Market Borrowings Rupee Loans Less: Direct Repayments Net Treasury Bills Treasury Bonds Sri Lanka Development Bonds (SLDBs) Central Bank Advances Other Borrowings from Banks(c) Use of Cash Balances 2.1.2 Domestic Other Borrowings(d) 2.2 Foreign Financing 2.2.1 Project Loans Less: Repayments Net 2.2.2 Non-project Loans Commodity Loans Less: Repayments Net Other loans(e) Less: Repayments Net

2004
(162,501) 341,116 (503,618) 162,501 117,243 112,563 564 84,219 (83,656) 25,026 156,669 16,361 3,587 (2,109) (3,316) 4,680 45,256 69,600 24,472 45,128 128 3,196 5,493 (2,297) 5,501 3,076 2,425

2005
(177,424) 428,643 (606,067) 177,424 123,603 119,303 43,679 67,875 (24,196) (9,402) 108,113 4,955 47,492 (7,659) 4,300 53,821 64,691 17,274 47,417 6,404 280 390 (110) 10,209 3,695 6,514

2006
527,435 215,516 163,808 164,458 23 23,873 (23,850) 20,300 97,429 34,254 9,269 33,874 (6,818) (650) 51,708 78,254 33,715 44,539 7,169 3,227 5,163 (1,936) 16,216 7,111 9,105

2007
614,329 262,252 145,136 127,076 18,833 8,500 10,333 37,092 52,807 23,592 11,664 (3,025) (5,386) 18,060 117,115 72,871 39,108 33,763 83,352 2,510 5,417 (2,907) 105,848 19,589 86,259

2008
(322,329) 708,596 322,329 314,312 309,694 1,500 (1,500) 69,766 192,356 65,497 15,629 (43,598) 11,544 4,618 8,018 114,600 47,762 66,838 (58,820) 58 5,771 (5,713) 14,970 68,077 (53,107)

2009
(486,626) 746,359 486,626 245,556 234,276 1,904 19,621 (17,717) 49,008 201,935 7,564 (2,428) (2,918) (1,169) 11,280 241,070 146,717 66,059 80,658 160,412 314 5,871 (5,557) 208,755 42,786 165,969

2010
(451,924) 858,372 451,924 202,229 191,999 24,583 (24,583) 82,796 140,440 11,073 3,998 (7,291) (14,434) 10,230 249,694 163,860 55,360 108,500 141,194 126 6,100 (5,974) 163,893 16,724 147,169

2011
(455,207) 973,476 455,207 231,224 236,021 25,748 (25,748) 79,616 168,401 5,268 16,864 13,730 (22,109) (4,798) 223,983 174,523 63,632 110,892 113,092 3,254 5,793 (2,539) 144,995 29,364 115,631

2012 (a)

(215,516) (262,252)

(551,142) 1,030,128 (1,581,271) 551,142 257,847 252,409 3,576 (3,576) 16,782 154,548 18,359 16,549 45,139 4,609 5,438 293,295 228,808 80,958 147,850 145,445 2,316 5,634 (3,319) 255,700 106,937 148,764

(742,951) (876,581) (1,030,925) (1,232,984) (1,310,295) (1,428,683)

(a) Provisional (b) Consists of government expenditure excluding contributions to sinking funds, direct repayment of public debt and subscriptions to international financial organisations. Also excludes book adjustments arising from losses on Advance Account operations incurred and financed in previous financial years. Hence, the figures may not tally with the figures published in the Accounts of the Government of Sri Lanka. (c) Includes cash items in process of collection in the Central Bank and commercial banks, government import bills, overdraft and borrowings from offshore banking units of commercial banks. (d) Includes domestic grants and administrative borrowings and payments to be made (e) Includes cash loans received from the Iraq, China, OPEC, Japan and military equipment loans and Euro currency commercial loans.

Sources : Central Bank of Sri Lanka Ministry of Finance and Planning

Public Debt Management in Sri Lanka

77

cost of borrowing

Table 23

Annualized Weighted Average Yield Rates of Treasury bills , Treasury bonds and Rupee loans (a) Per cent per annum Instrument Treasury bills (Days) 91 182 364 Overall average Treasury bonds (Years) 2 3 4 5 6 7 8 9 10 12 15 20 Overall average Rupee Loans (Years) (c) 2 4 5 6 7 8 10 Overall average Overall average 9.54 9.54 10.81 9.90 16.56 16.74 16.83 17.10 15.72 16.10 18.59 12.60 12.60 12.94 8.69 12.47 10.96 11.01 11.05 10.90 11.05 15.21 15.36 13.88 15.28 15.44 15.15 18.95 18.44 17.87 17.00 18.59 16.32 17.01 14.29 11.20 12.09 13.39 14.69 9.46 9.01 9.65 9.31 9.43 9.19 9.15 9.59 9.45 7.77 7.99 8.23 8.55 8.70 8.84 8.91 9.00 9.15 9.10 9.30 8.64 11.30 11.11 11.58 13.32 11.84 12.50 14.40 14.00 11.00 12.46
(b)

2006 10.65 10.68 10.89 10.69

2007 16.61 16.81 16.23 16.57

2008 18.54 18.45 18.89 18.59

2009 11.43 12.18 12.76 12.25

2010 7.86 8.42 8.43 8.32

2011 7.28 7.21 7.41 7.31

2012 10.72 12.29 12.14 11.81

7.76 Source : Central Bank of12.05 Sri Lanka

(a) Net of 10% withholding tax. Effective from May 3, 2002, government has imposed withholding tax on interest of government securities. (b) The issue of Treasury bills with maturities of 91 days, 182 days, and 364 days in place of 3,6,12 month maturities respectively, commenced in October, 1999. (c) For Callable Rupee loans the compulsory date of repayment was considered.

78

Public Debt Management in Sri Lanka

cost of borrowing
Series 06.60%2014A 07.25%2016A 08.50%2018B 08.00%2022A 08.00%2032A 06.20%2015B 05.80%2017B 06.60%2014A 07.25%2016A 08.50%2018A 09.00%2014A 08.50%2015A 08.00%2016B 05.80%2017A 08.50%2018B 05.65%2019A 06.20%2015B 05.80%2017B 08.00%2017B 08.00%2020A 08.00%2022A 09.00%2014A 06.40%2016B 08.00%2018A Settlement Date 17/01/2012 17/01/2012 17/01/2012 01/02/2012 01/02/2012 15/02/2012 15/02/2012 01/03/2012 01/03/2012 01/03/2012 02/04/2012 02/04/2012 02/04/2012 16/04/2012 16/04/2012 16/04/2012 11/05/2012 11/05/2012 02/07/2012 02/07/2012 02/07/2012 02/08/2012 02/08/2012 02/08/2012 Maturity Date 01/02/2014 01/04/2016 15/07/2018 01/01/2022 01/01/2032 15/06/2015 15/07/2017 01/02/2014 01/04/2016 01/02/2018 01/10/2014 01/11/2015 01/06/2016 15/01/2017 15/07/2018 15/01/2019 15/06/2015 15/07/2017 15/06/2017 01/06/2020 01/01/2022 01/10/2014 01/10/2016 15/11/2018

Treasury Bond Auctions in 2012


Maturity Period (Years) 2 4 6 10 20 3 5 2 4 6 2 4 4 5 6 7 3 5 5 8 10 2 4 6 Amount Offered (Rs. mn.) 2,000 2,000 2,000 1,000 1,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 1,000 1,000 5,000 5,000 5,000 2,000 2,000 2,000 Bid Received (Rs. mn.) 4,600 4,450 4,450 2,450 2,950 5,200 4,400 4,305 4,410 4,410 5,000 4,200 4,200 4,450 4,500 4,670 2,450 6,200 11,010 11,015 11,005 5,110 4,525 4,500 Amount Accepted (Rs. mn.) 2,000 2,000 2,000 1,000 1,026 3,000 2,000 2,000 2,000 2,000 3,000 2,000 2,000 2,050 2,000 2,000 1,150 5,075 5,000 5,000 5,000 2,000 2,025 2,000 Coupon Rate 6.60 7.25 8.50 8.00 8.00 6.20 5.80 6.60 7.25 8.50 9.00 8.50 8.00 5.80 8.50 5.65 6.20 5.80 8.00 8.00 8.00 9.00 6.40 8.00

Table 24
Weighted Average Yield (a) 9.45 9.55 9.75 10.25 11.00 10.20 10.75 10.61 10.83 11.07 11.46 11.60 11.80 12.10 12.30 12.50 13.50 14.00 14.15 14.40 14.75 13.62 14.10 14.25

Source: Central Bank of Sri Lanka (a) Effective from May 3, 2002, government imposed a 10% withholding tax on interest of government securities. The rates quoted are net of this tax.

Public Debt Management in Sri Lanka

79

cost of borrowing
Amount Offered (Rs. mn.) 91 Days 3,000 2,000 3,000 3,000 3,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 4,000 3,000 3,000 4,000 4,000 3,000 5,000 6,000 5,000 5,000 3,000 2,000 3,000 3,000 4,000 5,000 4,000 4,000 4,000 4,000 3,000 5,000 4,000 2,000 1,500 2,000 2,000 2,000 2,000 2,000 2,000 1,000 2,000 3,000 3,000 3,000 1,000 1,000 1,000 182 Days 3,000 5,000 4,000 4,000 4,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 4,000 4,000 3,000 5,000 7,000 10,000 10,000 6,000 5,000 6,000 6,000 7,000 10,000 7,000 7,000 7,000 7,000 5,000 6,000 4,000 4,000 2,500 4,000 3,000 3,000 4,000 3,000 2,000 4,000 6,000 8,000 7,000 6,000 6,000 6,000 6,000 364 Days 4,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 3,000 4,000 4,000 4,000 4,000 4,000 5,000 7,000 15,000 10,000 6,000 5,000 6,000 6,000 7,000 10,000 7,000 7,000 7,000 7,000 5,000 6,000 5,000 3,000 3,000 4,000 5,000 10,000 10,000 5,000 4,000 5,000 6,000 8,000 8,000 6,000 5,000 8,000 8,000

Treasury Bill Auctions in 2012 Amount Received (Rs. mn.) 91 Days 13,113 13,813 10,808 14,593 6,428 5,686 10,739 10,287 10,669 9,043 8,538 9,018 12,168 10,216 7,996 13,892 19,185 15,522 35,692 46,708 35,321 25,360 12,067 7,579 7,190 5,745 5,443 5,924 6,958 9,401 6,340 7,312 8,913 5,959 11,655 7,250 5,105 3,007 4,841 5,393 4,603 4,829 5,548 5,846 4,680 4,953 5,039 5,904 5,155 3,215 6,145 3,371 182 Days 5,985 9,127 5,353 6,225 5,224 5,348 4,975 3,792 4,088 3,895 3,863 3,641 5,380 5,390 3,672 3,791 6,577 6,516 8,695 12,741 20,159 31,319 25,630 10,885 11,967 15,388 18,885 23,313 35,163 29,298 21,765 22,492 19,540 11,387 13,109 16,225 17,327 18,211 17,946 11,865 11,187 5,951 4,263 7,329 11,478 19,250 22,377 20,295 18,983 11,496 10,962 11,054 364 Days Amount Accepted (Rs. mn.) 91 Days 182 Days 364 Days 3,920 2,724 4,797 3,505 4,024 1,150 1,383 1,368 677 3,459 1,105 1,000 1,000 3,611 1,920 1,218 402 1,201 510 1,101 5,860 5,142 4,750 1,011 3,946 2,705 1,095 2,680 2,282 4,148 1,142 4,302 1,686 1,346 4,307 582 2,668 1,000 4,892 9,860 15,240 6,936 9,451 2,987 3,068 5,329 8,461 8,469 5,414 8,510 10,000 9,200

Table 25 Weighted Average Yield Rates(a) 91 Days 8.68 8.68 8.67 8.67 8.68 9.24 9.31 9.51 9.81 10.11 10.42 10.75 11.00 11.05 11.62 11.73 11.93 12.11 12.19 11.99 11.58 11.01 10.86 10.95 11.04 11.12 11.20 11.34 11.36 11.35 11.35 11.37 11.36 11.36 11.41 11.44 11.44 11.41 11.30 11.00 10.63 10.66 10.68 10.68 10.67 10.74 10.79 10.44 10.23 10.00 182 Days 8.71 8.71 8.71 8.71 8.71 9.26 9.44 9.64 9.94 10.18 10.46 11.06 11.06 11.65 11.85 12.05 12.20 12.30 12.40 12.32 12.29 12.12 12.29 12.47 12.61 12.77 12.86 12.91 12.85 12.87 12.91 12.95 13.02 13.07 13.12 13.12 12.91 12.57 12.10 11.77 11.83 11.90 11.97 12.02 12.05 12.07 12.09 12.10 11.78 11.53 11.32 364 Days 9.31 9.31 9.31 9.30 9.30 9.88 9.99 10.19 10.30 10.45 10.76 11.11 11.32 11.32 11.69 11.96 12.16 12.36 12.49 12.58 12.50 12.60 12.66 12.67 12.78 12.88 12.99 13.10 13.16 13.15 13.15 13.18 13.23 13.27 13.31 13.36 13.36 13.30 13.02 12.48 12.29 12.37 12.48 12.56 12.65 12.73 12.81 12.85 12.86 12.45 12.18 11.69

Issue Date

06/01/2012 13/01/2012 20/01/2012 27/01/2012 03/02/2012 10/02/2012 17/02/2012 24/02/2012 02/03/2012 09/03/2012 16/03/2012 23/03/2012 30/03/2012 06/04/2012 13/04/2012 20/04/2012 27/04/2012 04/05/2012 11/05/2012 18/05/2012 25/05/2012 01/06/2012 08/06/2012 15/06/2012 22/06/2012 29/06/2012 06/07/2012 13/07/2012 20/07/2012 27/07/2012 03/08/2012 10/08/2012 17/08/2012 24/08/2012 31/08/2012 07/09/2012 14/09/2012 21/09/2012 28/09/2012 05/10/2012 12/10/2012 19/10/2012 26/10/2012 02/11/2012 09/11/2012 16/11/2012 23/11/2012 30/11/2012 07/12/2012 14/12/2012 21/12/2012 28/12/2012

7,909 7,142 3,075 7,520 7,879 4,193 10,265 6,488 1,408 7,836 8,673 2,455 8,750 4,603 1,124 6,165 2,831 1,308 6,463 3,700 1,000 6,072 6,747 1,006 6,072 869 733 8,214 4,968 1,046 6,260 6,085 1,103 6,005 7,128 6,805 3,731 1,304 8,476 1,560 2,180 5,065 2,960 947 5,093 9,587 1,570 6,012 6,080 2,151 5,066 8,955 2,331 5,425 8,061 3,372 6,696 10,237 9,466 12,520 6,050 13,869 21,454 8,160 18,319 18,617 5,333 10,391 9,244 2,921 6,935 8,056 3,095 9,232 8,850 3,094 6,000 9,410 3,051 10,350 11,560 3,030 17,768 16,694 1,025 13,470 10,108 5,861 20,231 12,770 2,650 18,415 11,107 3,262 11,617 9,978 4,026 12,470 6,426 2,774 8,617 9,950 6,403 7,842 6,172 1,115 11,420 6,451 2,340 2,326 5,880 1,101 5,500 13,508 2,125 4,210 21,443 700 2,455 23,210 1,100 2,569 13,596 2,001 2,967 15,391 - 1,148 9,137 524 5,558 9,918 1,000 6,568 13,469 2,192 8,080 17,396 1,464 12,499 14,901 3,669 11,529 12,417 - 7,978 24,127 1,000 3,919 29,540 1,000 6,032 23,547 1,036 6,355

(a) Effective from May 3, 2002, government imposed a 10% withholding tax on interest of government securities. The rates quoted are net of this tax.

Source: Central Bank of Sri Lanka

80

Public Debt Management in Sri Lanka

Secondary Market Operations


SECONDARY MARKET TRANSACTIONS as reported by Primary Dealers 2006 1. Outright Transactions 1.1. Treasury bills Purchased Sold Total 1.2. Treasury bonds Purchased Sold Total 2. Repurchase Transactions 2.1. Treasury bills Repo Reverse repo Total 2.2. Treasury bonds Repo Reverse repo Total 3. Total Transactions (a) Provisional 1,194,443 783,516 1,977,959 3,670,574 886,251 886,744 1,772,995 4,801,607 1,442,266 893,823 2,336,089 5,667,092 2,757,851 770,755 3,528,606 6,459,690 2,877,407 719,718 3,597,125 6,442,277 3,936,271 605,196 4,541,468 7,184,012 575,982 328,961 904,943 842,003 986,072 1,828,075 1,359,014 615,879 1,974,893 1,015,066 172,238 1,187,304 1,217,880 177,882 1,395,762 1,215,200 159,057 1,374,257 130,176 170,311 300,487 2,882,902 193,836 197,580 391,416 3,601,070 245,722 222,970 468,692 4,310,982 465,616 541,634 1,007,250 4,715,910 344,567 352,079 696,646 4,992,887 326,589 303,908 630,497 5,915,725 72,636 414,549 487,185 257,216 551,905 809,121 284,304 603,114 887,418 210,284 526,246 736,530 177,902 574,842 752,744 239,168 398,622 637,790 787,672 2007 1,200,537 2008 1,356,110 2009 1,743,780 2010 1,449,390 2011 1,268,287

Table 26

Rs. million 2012(a) 1,584,095 374,597 672,438 1,047,035

259,999 277,061 537,060 6,246,422 1,510,151 219,855 1,730,006

3,989,074 527,341 4,516,416 7,830,517

Source: Central Bank of Sri Lanka

Table 27 SECONDARY MARKET TRANSACTIONS RECORDED IN THE LANKASECURE (a) 2009 1. Treasury bills 1.1. Outright Purchases / Sales 1,116,481 2010 2,033,242 2011 2,366,056 Rs. million 2012 2,472,283

1.2. Repo / Rev. Repo 2. Treasury bonds Total

8,048,631

6,932,150

21,379,696

19,346,454

22,657,601 25,023,656

13,915,619 16,387,902

2.1. Outright Purchases / Sales 2.2. Repo / Rev. Repo

Total

12,493,904 20,542,535

10,368,869

2,125,035

19,870,327 41,250,023

17,896,054

1,974,273

28,655,372 53,679,028

26,674,790

1,980,582

19,054,886 35,442,788

17,284,906

1,769,980

3. Total Transactions

(a) Note: - All transactions have been recorded in the LankaSecure System in Face Value basis. - Accuracy of the information is subject to the accuracy of the data recorded by the system participants in the LankaSecure System.

Source: Central Bank of Sri Lanka

Public Debt Management in Sri Lanka

81

S-ar putea să vă placă și